Hiding the Cost of Healthcare

Hiding the Cost of Healthcare

In the United States, our current system of healthcare coverage is hiding the cost of healthcare. Anyone who has to go to physical therapy, get an MRI, has a child that needs treatment for a disability, or ends up in an ER knows firsthand that healthcare is expensive, but many of them probably don’t realize just how costly our healthcare system truly is. For the most part, in our country we have a system that pulls a third party into every payment scenario for healthcare, and as a result, the cost of healthcare is not reflective of a true market.

 

Many argue that our current system creates too much of a moral hazard, with people living unhealthy lifestyles because they know they won’t face the full cost of care if they need it. Some argue that the current arrangement leads to unnecessary care or over-treatment because people don’t pay the full cost of care, so they seek more of it. At the same time, groups argue that insurance and healthcare coverage are still prohibitively expensive, and that the stress of possibly having to go to a doctor and spend thousands of dollars (even if one is insured) genuinely harms people’s health.

 

I think all of these are true in their own way, and I think they are relatable because they are things that people have seen first hand or can easily imagine, but there is still a deeper level of healthcare costs in America that we don’t discuss. Our system of taxes is also hiding the cost of healthcare. As Dave Chase writes in The Opioid Crisis Wake-Up Call, “Today, the tax break for employer-paid benefits is estimated at over $600 billion, making it the largest tax break in the tax code, the nation’s second largest entitlement after Medicare, and the primary wage suppression driver.”

 

During World War II, wages to employees were frozen to prevent rapid inflation in the United States during the war. To attract and retain qualified employees, businesses turned to employer-paid benefits, and congress created a law which would allow those benefits to be tax-deductible for employers. This was a way to effectively give employees a bonus without paying them more, keeping inflation down, but still giving them something that economically and socially benefited them. Today of course, you are taxed on anything of value you receive from your employer as if it was straight cash, so your healthcare benefit basically still counts as wages, but that tax break for the employers is still in place for the health benefits they provide.

 

This is where we are hiding the cost of healthcare in America when it comes to private insurance. Most Americans receive healthcare through their employer, and the US government loses out on $600 billion in taxes to allow employers to offer health insurance. So the plan you are on that you might lose if you are fired, the plan you have this year that might not be offered again next year if the insurer changes, the plan that still has a $1,500 deductible and $4,000 out of pocket annual max, costs you and U.S. tax payers $600 billion per year.

 

Because this is a hidden cost, it is not something we discuss very often. We are afraid of the cost of a nationwide healthcare system, but we don’t discuss how much money is not being collected in taxes and being sheltered by a tax break that maintains a system that very few people are actually happy about. We face high costs ourselves, even if we are covered by a plan that fits within this $600 billion tax break system, and the system has warped the way that care is payed for and provided to the point where we don’t even know what knobs and levers to try to pull to get the who thing to be more transparent, provide real value, and to be less costly. We need to be honest about the ways that our current system is hiding the cost of healthcare in America, or we will never be able to make real changes to improve the system.
Jobs and Addiction

More Than The Chemical: Jobs and Addiction

A simple view of addiction is that people become hooked on a powerful chemical and their entire life becomes focused on nothing but the drug. The chemical sinks into the brain of the addicted person, and their desire for the neurological high from the chemical drives them beyond everything else. If only we could stop the person from ever being exposed to the chemical, even once, we would prevent them from ever developing their drug addiction and chemical dependence.

 

This view, however, is incomplete. A lot of what I try to do with this blog is show that the world is more complex than we often realize. It is easy to sit at home, listen to a news story on TV, and call everyone an idiot while offering an obvious solution from the couch. In reality however, our first impressions of the world and its problems are woefully inadequate, and drug addiction is a good example.

 

I recognize that chemical hooks, neurotransmitters, and brain chemistry are major parts of addiction, whether to a chemical substance, to a behavior like gambling, or other forms of addiction, but research that Dave Chase’s book The Opioid Crisis Wake-Up Call presents is a good indication that there is more going on than just a drive to fill the brain with a chemical. Chase writes, “For every one percent rise in unemployment, there’s a four percent rise in addiction and a seven percent increase in emergency department visits.

 

Our economy, it appears, is deeply connected with addiction. It is not hard to think of a causal model between economic performance and addiction. Having a meaningful job gives people a chance to feel valued, gives people a chance to contribute to society, and gives people an increase in their social status (in political science we might think of Social Construction Theory: working people are Advantaged or at least Dependents whereas the unemployed are simply Deviants).

 

When people lose their job, they feel a loss of social status, they may feel helpless if they cannot find another job of equal status, and they lose their feeling of importance. They become more vulnerable, and it appears are more likely to turn to substances to blunt the pain they feel, either physically, mentally, or emotionally. This sets people up for addiction.

 

In this model, addiction is not just a moral failure. It is a failure at more levels than just the individual and their ability to work and resist chemicals. Our society has isolated people and made it hard to maintain strong family connections. When jobs disappear and people don’t have close people and community connections and organizations to turn to for meaning, purpose, and participation, they will struggle, and in their empty void potentially turn to drug use. Economic data makes this clear, and the solution is not just to provide someone with a bleak call-center job, but to really develop community connections, meaningful work, and opportunities to improve social status while deepening relationships and opportunities to contribute to society. Drug use is not a simple issue, it is tied to larger economic and social forces, and we have to recognize that reality to solve our nation’s problems.
Disruptive Innovation

The Basics of Disruptive Innovation

In his book Deep Work Cal Newport shares a story about Clay Christensen, the Harvard Business School professor who coined the term disruptive innovation. Its an idea I like quite a bit, especially since it is a big concept in healthcare right now, and I focused quite a bit on health policy and dabbled slightly in healthcare economics during my graduate studies.

 

Newport describes the basics of disruption like this, “entrenched companies are often unexpectedly dethroned by start-ups that begin with cheap offerings at the low end of the market, but then, over time, improve their cheap products just enough to begin to steal high-end market share.”

 

In this model, Uber wouldn’t be a disruptive innovation. Uber didn’t do anything to dramatically change the world of taxis. They sidestepped a lot of entrenched thinking and decided that laws and regulations didn’t apply to them while introducing badly needed technology to the world of taxis, but they didn’t offer a new cheap version of the service to gradually build upon and improve.

 

An example of disruptive innovations that I like, that I learned about in a healthcare economics class, is Bose headphones. Bose is producing headphones that have impressive noise cancelling, noise isolating, and noise amplifying technologies. They are certainly not cheap consumer products, but compared to highly technical, very expensive, and highly individualized hearing aids, they are. They don’t do everything that a hearing aid does now, and they don’t provide quite as good of a hearing experience for someone who relies on hearing aids, but they do seem to be able to compete at the lower end of the market. For people who are currently priced out of hearing aids and people who don’t have complete hearing loss but maybe should start considering hearing aids, Bose headphones seem like they can help. They can cancel competing sounds and provide just enough amplification and isolation to improve some people’s hearing…even if hearing aids would be a better long term solution.

 

The concept is important for several reasons. If you are a business executive, you need to know what is happening in your market space, and you need to know when someone is coming along to provide a cheaper service that might one day compete with you directly, or steal your market share. Also, from a regulatory standpoint, understanding disruptive innovations and where they may be occurring is important. If people are ditching their pricey hearing aids for less effective Bose headphones, are they putting themselves at risk while driving or navigating busy environments? What happens if a disruptive innovation guts an industry, and leaves people with disabilities who relied on the high priced product’s level of support and customization without a suitable product or service?

 

We should keep disruptive innovations in mind because they can unlock new potentials (we do a lot with our phones in ways that are quicker but not always as user friendly as old standard alternatives) but can also be dangerous for individuals and markets (should we really allow anyone to use a phone to scan their eyes to get a new glasses prescription?). Thinking about disruptive innovations helps us think about current social and economic trends, and it also forces us to be more considerate of others. We have to balance and weigh the interests of business, the interests of new consumers, and the interests of vulnerable populations when we think about where a disruptive innovation could push a market.

City Growth – The Sports Play

I’m a fan of the research and work that comes out of the Brookings Institute, a generally center-left think-tank in Washington DC that I believe does a good job at looking at politics and policy holistically, and is able to get beyond the partisan rhetoric that dominates most of our political landscape. An area of interest for many of the writers and policy experts at Brookings is the area of economic development in metropolitan areas, particularly as related to sports and business retention. Two Brookings experts, Bruce Katz and Jeremy Nowak look at how Indianapolis used sports to help jump-start the city’s economy, but present the information in a way that shows that reliance on sports alone is not sufficient to develop a thriving middle class and robust regional economy.

 

“A sports-based development strategy,” they write, “can take a city only so far. Sports attract tourism and visitors. Game time enhances demand for lodging and restaurants. Name teams may have an intangible effect on the attraction and retention of innovative firms and talented workers. But in the end, the sports industry thrives on low-wage jobs and does not represent a model of economic growth for a city or metropolis. Beer and hot dogs are not the stuff of a sustainable middle class.”

 

In their book The New Localism, the authors talk about the efforts that Indianapolis took to attract and retain an NFL football franchise and also to attract the NCAA headquarters. They go on to further explain how Indianapolis was not content to simply rest on being a sports headquarters and reinvested the energy and revenue from sports to drive and build new sectors. Sports teams can help be a support for a local economy, but they will never be a major driver, and on their own don’t appear to be worth the enormous tax breaks and stadium construction assistance that many cities and states seem eager to provide.

 

As Katz and Nowak stated, sports can have intangible benefits for communities like city pride and can serve as a hub for local events. But cities need to provide other attractions and benefits for their citizens. The people need additional higher paying jobs than can be found in a stadium and need real innovation to keep pace in our globalized world. If cities and states over-invest on the sports side, they may miss out on developing and investing in the factors that can make cities dynamic and competitive in the long run. Ultimately, sports teams can be a good attraction and can serve as a spark for energy and investment in making a city a good place to live and do business.

Collaborative Governance

In The New Localism, Bruce Katz and Jeremy Nowak discuss the elements needed for cities to continue to grow as economic engines of modern economies. The United States currently has a handful of dynamic cities across the country which are powering the national economy. San Francisco (really the Bay Area as a whole and Silicon Valley) is powered by tech companies, Houston is powered by oil giants, Boston is driving medical and biotech engineering, and New York City continues to be a powerful financial hub. While each of these metro regions is a model for the resto the country, they must adapt to globalized economies moving forward and must find ways to embrace new innovations to keep diversify and strengthen their own economies.

 

Katz and Nowak write, “the critical element is collaborate governance across networks of public, private, civic, and university institutions and leadership. No one sector can alone power a city and metropolis forward in today’s complex and competitive economy.” A single sector is not enough to reliably and consistently sustain an entire city or region. New innovations in diverse fields that share common foundations is required for economic well-being today. In order for cities to diversify and develop new industries in new sectors, a confluence of public institutions, private businesses, involved philanthropies, and cutting edge research universities is key.

 

The public sector has to be able to adapt and adjust laws, rules, regulations, and oversight in a world where every competitive advantage matters. Government must continue to protect the public interest and safety, but needs to allow for the organization of structures that can make real decisions timely. Private sector leaders also need to be involved and commit to place-making, developing the cities where they are located and bringing something beyond “jobs” to a region. Civic organizations and groups can fill the gaps between these actors and help provide funding and leadership initiatives to related to place-making and oversight.

 

None of these efforts will succeed if an intelligent and motivated workforce is not available to connect with the agencies and organizations involved. Research universities play a role in new economies by connecting students with relevant research and helping to get innovation out of the lab and into the private sector. Connecting students with real companies that are taking real steps to make their communities better will build the energy and excitement necessary for an educated and motivated workforce to make economic growth, innovation, and development possible. Some of this I recognize is “pie in the sky” thinking, but it is necessary for future growth. Pushing companies to become Public Benefits Corporations and rewarding more civic minded and responsible organizations is a small and necessary step to move in the direction I described, otherwise, there is nothing to convince companies to make greater investments in place-making rather than just finding a nice place to move to.

When Disciplines Collide

One of the case studies presented by Bruce Katz and Jeremy Nowak in their book The New Localism is Pittsburgh, PA, which has merged academic research institutions with business industry and supportive public policy. Pittsburgh has two major research universities within a block of each other, The University of Pittsburgh and Carnegie Mellon University. Experiences from Carnegie Mellon in the past are fueling the city’s reinvention and powering new industry as research is getting out of the institutions and into new businesses to drive the economic engine of the city.

 

What Pittsburgh does so well, explained by Katz and Nowak, is merge diverse industries and fields to create new innovation. They write, “A convergence economy emerged: a fusion of academia and industry with electrical and mechanical engineering, computer science, and multiple other fields. When disciplines collide, magic happens.” The idea of a convergence economy is crucial to New Localism. Academic institutions have been learning valuable lessons by creating more crossover between their divisions and fields. Bringing together academics who would otherwise rarely communicate is driving fields that previously had stagnated. With two leading institutions in the city, Pittsburgh has taken this lesson out of the academic fields into private industry.

 

Academics on their own don’t have a lot of great business sense or experience, but do have a good sense of where innovation is heading and what might be possible with new technology. Combining their expertise and knowledge with people who understand business and have connections with funding agencies can help lead to scale and commercialization of innovations. This cannot happen without something that creates a convergence between disparate entities.

 

Hospitals today are creating incubator labs to help get new medical advances out of the research lab and into industry. Universities are beginning to merge with private industry to find ways to get innovation out of the academic hallways and journal articles into factories and business. Governments are helping back quasi-governmental networks to share the risk of new innovation and find new ways to fund local developments in technological innovation. Pittsburgh is leading in this field, and cities across the United States are following by finding new ways to engage their academic institutions and industries.

Dynamic Economies

A lot of work from both the Brookings Institute and from the Mercatus Center at George Mason University comes across my radar. Oftentimes the perspectives of the two think-tank centers differ quite a bit, but one area where they align is on local economies. Brookings (a center-left think tank) and Mercatus (a Libertarian leaning academic quasi-think tank) both agree that local economies depend on dynamic innovation and thriving centers where people actually want to be. Both agree that attracting competitive companies and driving innovation requires investments in placemaking, not just tax breaks and financial incentives for firms.

Bruce Katz and Jeremy Nowak (both from Brookings) write, “A globally dynamic economy requires that any locality that wants to thrive must invest in the qualities of place that attract and retain residents and firms, in human capital, and in an enterprise environment that enables innovation and business growth.” Mercatus also suggests that places focus on infrastructure and development to attract firms and encourage people to move to them. Mercatus is likely to encourage this growth in an organic invisible hand manner, while Brookings is more encouraging of using the state to intentionally develop infrastructure and systems for growth and network development.

The important lesson is that economic growth and development require meaningful investments in infrastructure. Human capital is the heart of networks and the key to innovation and growth. In order to attract people and to attract companies that can compete in a globalized world, cities need to make themselves livable and attractive to young and dynamic people. Tax incentives are not enough to attract companies for the long term. A company that is willing to move for a simple tax break, is not a company that is in it for the long run. Stable companies that want to grow and develop in one place will want places that are interesting and offer the amenities needed for a thriving 21st century lifestyle. Companies that are looking to make long-term and winning investments need human capital, and in order to attract human capital they need dynamic places where people want to live and set roots.

Markets & Civil Society Organization

I tend to be a bit hard on the idea of free markets. I grew up learning about the invisible hand and in a family that started a business and did well. I (mostly because of my family’s business) appreciated the idea that setting up a market and running a business was a good thing from the standpoint of finding an efficient point at which to price a product or service. Today however, perhaps as a result of my healthcare interests, I see numerous examples of markets falling short of the goal we establish in our minds based on the idea of the invisible hand.

 

Rather than seeing markets find an efficient point where competition drives efficiency and provides everyone with better products at better prices, I see too many externalities from free markets and unfettered competition. We are producing a lot of greenhouse gasses that harm life on the planet. CEOs are getting better (maybe deservedly so) at capturing greater salaries from their companies, driving economic inequality, and straining social stability. Private health insurance markets seem to drive overall healthcare costs up at every turn, and no one seems to be able to understand how health insurance actually works. The free market, and open competition, does not appear to function as clearly and organize as succinctly as my simple understanding from high school would have suggested.

 

What is missing is something that ties markets and capitalism back into civil society. Bruce Katz and Jeremy Nowak, in their book The New Localism, suggest that shifting political power and decision making back to local contexts within cities and metropolitan regions can help correct these problems. They write, “New Localism is a mechanism for converting the self-organizing power of markets and civil society into structured fiscal and financial resources, and ultimately, political power.”

 

National and multinational sized corporations often have a responsibility to maximize profits for shareholders or top executives. Their huge scale means that any local or regional place is less important for them, since there are always markets in other countries and other states. However, when local governments exert more control over such companies, the local contexts begin to matter more. When CEOs and executives from these companies are invited in to help shape policy beginning at the local level, and are held accountable to the local individuals in the places where their markets are strong or where their employees actually live, the business motives that encourage negative externalities are shifted. The dynamic becomes one where civil responsibility is elevated, and ultimately political power is shifted in a way to help organize business in a more responsible manner in relation to the local context.

 

The lesson that Katz and Nowak share is that businesses on their own are encouraged to organize themselves in a way that maximizes profit at the expense of the local communities in which they operate. By giving localities more power and better networked governance structures, big businesses can instead be a cooperative part of the political and social structure, re-organizing themselves within society in a way that helps make Adam Smith’s invisible hand dream a little more plausible. The Invisible hand in this model is not so invisible, but more of a structured handshake creating a commitment to more than just profits.

Immigration and City Rebuilding

I find myself in an interesting position when I think about immigration in the United States. I don’t have incredibly strong or fully informed views on immigration, and I find myself ending up at intersections where competing values push in opposing directions. From an economic perspective I agree with researchers who say that immigration is crucial for our national, and even global economy. From a human rights perspective, it feels imperative that we allow people languishing in terrible situations in foreign countries to have the opportunity to move to the US where their living standards will automatically increase substantially. However, I understand people’s hesitation to change and their fear of outsiders. I don’t want to accept these hesitations and fears, but I know they are real and I see how forcing change and immigration upon reluctant people can have disastrous consequences for society as a whole. I’m not sure how much we should restrict immigration to avoid this backlash, or whether we should just push forward with the immigration our economy needs.

 

What is clear to me is that the United States is not prepared to have this discussion in a reasonable and rational manner at the Federal level. It is my sense that there are more people aligned with the Democrats who are willing to be moderate (as I am) and are willing to compromise on important values such as human fairness, flourishing, and lifting the global poor for what feels like the psychological well being of xenophobic members of the Republican party. I don’t feel the same mindset from people within the Republican party, although this could just be a bias due to my media bubble. My sense is that a feeling of fear has taken root within the Republican party and derailed any reasonable national level discussion around immigration.

 

However, on smaller scales, I think the parties have more parity. In The New Localism authors Bruce Katz and Jeremy Nowak write, “American cities could not have revived as they have in the absence of large-scale immigration. Moreover, dramatic levels of immigrant entrepreneurship in cities as diverse as Houston, Miami, Philadelphia, and Minneapolis are powerful reminders of how cities were built and rebuilt over generations.”

 

On the local level, the individuals who form the parties and drive government, part committees, local businesses, non-profits, and foundations can align on topics such as immigration even though on a national level the same individuals cannot agree. Within the city rebuilding is a continuous process, and compromises don’t have to be absolute and binding forever. At this level, immigration is personal and not abstract, and those who immigrate from outside can bring new ideas, exciting energy, and in some ways a fearless attitude that can help stakeholders align and connect, regardless of their political beliefs. Cities are not static, and this evolving nature allows for a moderate and reasonable discussion around immigration which is helping to fuel the revival of cities and metropolitan areas across the nation. My hope is that  this local level action can percolate upward and help us to have more informed and reasonable discussions on immigration at the highest levels of government in the United States. Sound local governance surrounding immigration with cities and metropolitan regions leading the way can hopefully be a federalist spark to tackle the thorny issue of immigration nationally.

Five Factors To Consider Regarding Our Donation Behavior

In The Elephant in the Brain, Kevin simler and Robin Hanson ask just how much of our behavior is influenced by our self-interest. As an explanation for why we do what we do, simply saying that we did something because we gained some material good, gained more social status, or received some type of pleasurable outcome is generally accepted, but ignored. It is clear that we have self-interest in doing things that we benefit from, but in many ways, we like to ignore self-interest and we prefer to explain our behaviors with more complex rationalizations for why we do what we do. This motivated reasoning, however, creates models that account for many factors without acknowledging the main factor that we would all rather ignore, the elephant in the room (brain), our self-interest.

 

Simler and Hanson investigate charitable donations in the framework of self-interest and consider the warm glow feeling that we get when we make charitable donations, help the person on the street, and generally do good things for others. They look beyond simply “we do things because it makes us feel good” and ask questions to get to a deeper level understanding of human behavior:

 

“The much more interesting and important question is why it feels good when we donate to charity. Digging beneath the shallow psychological motive (pursuing happiness), what deeper incentives are we responding to?

 

To figure this out, we’re going to examine five factors that influence our charitable behavior:
  1. Visibility. We give more when we’re being watched.
  2. Peer pressure. Our giving responds strongly to social influences.
  3. Proximity. We prefer to help people locally rather than globally.
  4. Relatability. We give more when the people we help are identifiable (via faces and/or stories) and give less in response to numbers and facts.
  5. Mating Motive. We’re more generous when primed with a mating motive.
This list is far from comprehensive, but taken together, these factors help explain why we donate so inefficiently, and also why we feel that warm glow when we donate.”

 

I have been writing a lot recently about charitable giving. Part of the reason why is because I see great potential in the resources at the disposal of the average American. We have a lot of wealth relative to the rest of the world, a lot of time relative to previous generations, and a lot of information available to us. However, rather than using our wealth, our time, and the information available to us to maximize our lives, make the world a better place, and solve pressing problems, most people waste their resources. I have continually been thinking about what I consider The Stupid Economy where we feel pressured to buy things we don’t really want to keep up with and impress people we don’t really care much about, and use our resources in pointless and meaningless ways.

 

Our world today has incredibly bright people working at meaningless jobs. We use a lot of our human potential, our creative energy and brain power, and our money to get people to drink sugary water. We invest massive amounts of attention in celebrity news and we celebrate technological inventions like iPhones without applying our hunger for technological improvement to other problems that could potentially save more lives or do more to protect the planet from human caused problems – like trash in our oceans.

 

I want to encourage society to move in a direction that is more considerate and careful with our resource use. I want to be part of something that builds toward a society that has a smart economy, where instead of complaining about the diminishing purchasing power of our society while simultaneously buying $100 jeans we celebrate the resources we have and put them toward real use to create sustainable development. If we are going to set out to do good in the world, we have to understand what Simler and Hanson describe in the quote above. We have to understand how our rationality is derailed, and we need to understand why it is important to be truly effective when we try to do good with what we have.