Economics... (1 Viewer)

Ocelot

Midnight Marauder
Jul 13, 2013
18,943
#2
I may be wrong, but I assume you believe the market is more efficient when it comes to cars, toothbrushes and iphone applications. Can you explain why it's less efficient in providing healthcare and why it cannot provide education at all? Are there no private schools? Aren't almost all of the best universities in the world, according to almost all rankings, private?
For schools, it's obvious really. I mean education is the cornerstone of every person's career, if you make it private and completely dependable on how much money your parents make, that's not only completely unfair by just about any ethical standard imagineable, but also simply dumb from an economical standpoint, as a lot of pretty smart & talented people would simply end up not receiving any adequate education simply because of their family's background (not that this isn't a problem already to some extent), and as the average qualification of a large portion of society would drop dramitically.

It would work alright for the top ~20%, and very well for the top 1%, but also only initially until the economy in general stagnates due to a fucking awful batch of human capital. I'm actually astonished that I have to explain this, I've never heard anyone, not even the most anti-state people I know say that we should privatise the fucking school system.



Now for healthcare, this one is a bit less straightforward, and also more debateable really (mostly because there shouldn't be any debate at all for the educational system). Firstly however, single payer healthcare is the only realistic way to insure virtually everyone in a society, which in a state as affluent as the US or any first world country should be the goal anyways, for purely ethical reasons alone. But that's not what you asked for, so I'd rather point to the fact that the cost/benefit calculations of treatments have actually been shown to work significantly less efficient with private healthcare than with private schemes.
Secondly, health care is one of the prime examples of a merit good (ironically along with education), and I guess you're familiar with positive externalities and such, so I won't have to explain this one.
Thirdly, bureaucracy costs are in reality lower in most cases with singular public providers than with private insurances.
 

swag

L'autista
Administrator
Sep 23, 2003
75,143
#3
I think his point is free education, free healthcare and so on aren't free. It just means the government takes our money and spends it on that, instead of us spending it ourselves. And it's bad because private companies are way more efficient than the public ones. If they weren't, the Soviet Union would not have lost the Cold War.
Uhhh... that's not how the private healthcare industry works. There's no supply-and-demand free market economics. Nobody in the current system is incentivized to product MRIs that are 90% as effective as the top-of-the-line systems for 10% of the price. Prices are set by third-party payers and providers. They're incentivized to make the most bleeding edge devices available at the greatest expense -- the $30,000 Space Shuttle toilet seat equivalent -- while there are no incentives for efficiencies in cost reduction, manufacturing optimization, etc.

And along with that is the creation of a Byzantine system set up to pass the buck for liability whenever someone gets sick and a medical bill needs to be paid.

I cannot see how that's more efficient than anything a Khrushchev-era Soviet system would create. We have the most expensive healthcare in the world and we're getting less than half of the benefit as everyone else. It's fucked.

Education and healthcare are services that the free market is perfectly capable of providing and much better than the government. There is no market failure here.
Still don't buy it. Medical and drug companies go after treating the most defensible drugs, patents, and devices they can make to ensure profits. Good for them. But that means there's that much more money flowing into limp dick medications and anxiety pills for yuppies than, say, basic immunizations that ensure broader public health.

Medicines that produce cures rather than converting ailments to chronically treated conditions are far less profitable to the public market: better to have a lifetime subscriber than a one-time customer. This creates a society of drug-dependent people at very high overall medical expenses while curing nothing. This is what the free market economy wants, but is that really the best for the society overall, let alone GNP? Free market economies are a gross failure when it comes to healthcare.
 

Juliano13

Senior Member
May 6, 2012
3,863
#4
First of all, the argument that health insurers regularly don't pay is complete nonsense. If you really believe that then go buy shares in an insurance company. I actually own shares in one (GNW) and the stock is down 70% because it turned out they miscalculated the premiums for the long-term care insurance. The business is competitive and the margins are not that big, so as a result of the mistake they are losing money every quarter. They would rather get out of the LTC business, but they can't because they've signed contracts.
So yes, if an insurance company doesn't pay, you sue them and you win.

Uhhh... that's not how the private healthcare industry works. There's no supply-and-demand free market economics. Nobody in the current system is incentivized to product MRIs that are 90% as effective as the top-of-the-line systems for 10% of the price. Prices are set by third-party payers and providers. They're incentivized to make the most bleeding edge devices available at the greatest expense -- the $30,000 Space Shuttle toilet seat equivalent -- while there are no incentives for efficiencies in cost reduction, manufacturing optimization, etc.

And along with that is the creation of a Byzantine system set up to pass the buck for liability whenever someone gets sick and a medical bill needs to be paid.

I cannot see how that's more efficient than anything a Khrushchev-era Soviet system would create. We have the most expensive healthcare in the world and we're getting less than half of the benefit as everyone else. It's fucked.
This is just complete misunderstanding of the basics of economics. Of course the producers of medical equipment have incentive to make cheaper and better products in a market system, because the hospitals are profit-maximising companies. Take the MRI example, if company A sells an MRI for 2 millions and company B sells the same or similar MRI for 1.8 million, the hospital has incentive to buy from B and pocket the 200k. And A and B have incentive to compete both on price and quality. It's amazing that I even have to explain this to you. I know you haven't studied economics, but it should be obvious.

Your logic is a lot more valid if the hospital is public. Then the manager has no incentive to cut costs and maximise profits. What happens often times is they buy unnecessarily expensive equipment to get commissions.

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Still don't buy it. Medical and drug companies go after treating the most defensible drugs, patents, and devices they can make to ensure profits. Good for them. But that means there's that much more money flowing into limp dick medications and anxiety pills for yuppies than, say, basic immunizations that ensure broader public health.

Medicines that produce cures rather than converting ailments to chronically treated conditions are far less profitable to the public market: better to have a lifetime subscriber than a one-time customer. This creates a society of drug-dependent people at very high overall medical expenses while curing nothing. This is what the free market economy wants, but is that really the best for the society overall, let alone GNP? Free market economies are a gross failure when it comes to healthcare.
Sounds like John le Carre on a bad day. I’ll give you two different proofs why this is wrong because the better one seems to be hard for non-economists to understand. Let’s look at one hypothetical example with HIV.

1. Say company A has the patent on some anti-retroviral drug that you need to take every day for a lifetime to manage the disease. In a monopoly it would have no incentive to invest in R&D of a cure. But in a competitive environment it’s totally different. You also have companies B, C, D, etc. None of them have a good anti-retroviral, so A is a temporary monopolist and can charge whatever price it wants. The competitors have incentive to invent alternative anti-retrovirals (they are earning 0 now). More competition means A is not a monopolist any more so the price goes down. A’s profits go down. Now all companies have incentive to invent a cure because they’ll be a monopolist and charge the optimal (profit-maximising) price. In reality, A should be looking for a cure even when they are a monopolist, if they are rational, because they know their profits will be eroded when alternative antiretrovirals come out or when their patent expires.

2. Say company A has invented both the antiretroviral and the cure (never mind why) and is a monopolist. It will sell whichever is more profitable. They calculate that the profit-maximising price for 1-years supply of anti-retrovirals for a single patient is $20 000 (assume the cost of production is 0). Based on the average age and life expectancy of the patients, they expect to sell the drug for 20 years on average to one patient. Assume a discount rate of 5%. The NPV of the profits is about $270 000. The NPV of the cure (it’s a one dose magic pill) from one patient is simply equal to the profit-maximising price of the cure. But what is it? We don’t know, but it’s clearly greater than $270 000! Everybody is willing to pay more for a cure than a drug that only manages the disease. But the benefit to company A is even greater in this case – they avoid the risk of a competitor inventing a cure and taking their profits.

Your argument is flawed, but it makes for great stories about the evil pharmaceutical companies.
 

swag

L'autista
Administrator
Sep 23, 2003
75,143
#5
I have no idea about that.. I do know their investment is insane. My girlfriend works for a big pharmaceutical company (if not the biggest) and she says me that it routinely happens that someone who works there will drop a bottle of something and the bottle turns out to cost 50,000 dollars. And that's actually the price the company paid to the supplier, so it's not that they say it costs so much, they actually paid that amount of money.
Pharmas like to whine that they need to charge what they do because the revenue-generating potential of one successfully researched drug that's brought to market has to cover the other 20 they try and fail. But that's mostly a ruse when you look at their research budgets in proportion to their marketing budgets. Most of that extra money goes to print ads in Redbook and slick TV commercials to "ask your doctor" than it does on researching dead-end drugs.

Good, you've identified the purpose of a forum.
:D Problem solved.
 

Juliano13

Senior Member
May 6, 2012
3,863
#6
If they never paid out, they wouldn't exist. Let's steer away from silly debates of nonsense and not waste either of our's time here.

The issue is that they are designed to deny service. Profits rise when they put their own resources towards rejecting claims, not servicing them. That's the antithesis of most service-based businesses in the free market.



But it's not how it works. And that's the problem. Third parties (whether Aon actuaries or Medicare) come up with their lists of what procedures are covered and what isn't and how much should the going price be. The hospital isn't incentivized to use cheaper equipment as the cheaper systems either won't be subsidized by the payer or they won't be able to command a superior reimbursable price for the patient. So there are little or no incentives in the marketplace for manufacturers of ultra-low-cost but highly performant MRIs. Thus nobody is working on that, and everybody is working on the latest and greatest that will command the highest price and the highest reimbursements for everyone. (I know this having a PhD in Bioengineering and worked on this stuff.)



But A can't charge any price it wants. The third party payers can simply reject it, saying it costs to much to cover. So unless your patients are paying in cash, they can't exactly charge whatever price whim that strikes them. That caps the profit potential and the interest of competition entering the fold.

In any case, even if A, B, C, and D are in the market, they will all be incentivized to produce drug cocktails to generate lifetime subscriber revenue rather than a once-and-out cure. There's no money in cures. Cures are bad for business. And you can invent scenarios with NPV profits and discount rates on paper, but the reality is to look at the for-profit pharmas out there. They aren't looking for cures. They're looking for the last of the blockbuster drugs, like dick pills and the dying days of statins, where they can manage any illness or affliction you have as chronic care. Because that's where the profits and business sustainability are.

Btw, you do realize the "R&D investment excuse" of pharmaceutical companies is bunk, do you? Look at their balance sheets and you'll see they spend at least twice as much on consumer marketing as they do on research.
I feel as if I'm trying to explain multiplication to somebody who can't take sums. You really need to read some econ 101 book or wikipedia or sth, otherwise this is hopeless.

I hope you agree at least on one point: today we can cure a lot more diseases than 50 years ago and even more so than 100 years ago. How come?
 
OP
OP
Seven

Seven

In bocca al lupo, Fabio.
Jun 25, 2003
35,664
#7
I feel as if I'm trying to explain multiplication to somebody who can't take sums. You really need to read some econ 101 book or wikipedia or sth, otherwise this is hopeless.
You familiar with the Dunning-Kruger effect?
 

Juliano13

Senior Member
May 6, 2012
3,863
#8
Lol. No, you don't. To sue you need to be very sure of your case. You will invest time, effort and a whole lot of money. There is still a chance you might lose, even if you have a good case. And if you win, you probably will still have to pay a substantial part of the fees of your own lawyer. It's easy to sue people if you're an insurance company. The other way around, not so much.

You obviously have no idea how much these things costs..
I do. You are a lawyer, so I assume you know what a class action lawsuit is.

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You familiar with the Dunning-Kruger effect?
You make some great arguments. I changed my mind.
 
OP
OP
Seven

Seven

In bocca al lupo, Fabio.
Jun 25, 2003
35,664
#9
I do. You are a lawyer, so I assume you know what a class action lawsuit is.
First of all not all countries allow class actions. So there's that. I guess you didn't take that first step into account. That's okay, because you know nothing about this.

Then of course you also have to belong to the class. That in itself is tricky. But that's okay, because you know nothing about this.

And you'd have to wait to. It's not as if thousands of class actions against the same insurance company are filed every day. You didn't think of this either, but that's okay, because you know nothing about this.
 

Maddy

Oracle of Copenhagen
Jul 10, 2009
16,497
#13
I feel as if I'm trying to explain multiplication to somebody who can't take sums. You really need to read some econ 101 book or wikipedia or sth, otherwise this is hopeless.
Out of curiosity; what school of economics do you adhere to?
 

Juliano13

Senior Member
May 6, 2012
3,863
#14
First of all not all countries allow class actions. So there's that. I guess you didn't take that first step into account. That's okay, because you know nothing about this.

Then of course you also have to belong to the class. That in itself is tricky. But that's okay, because you know nothing about this.

And you'd have to wait to. It's not as if thousands of class actions against the same insurance company are filed every day. You didn't think of this either, but that's okay, because you know nothing about this.
USA does and that's what I was talking about, because in the USA you've got competitive private health insurance market. If one company doesn't pay it will go out of business.

The answer to the bolded part is this: Because in the real world insurance companies pay in most of the cases.
 
OP
OP
Seven

Seven

In bocca al lupo, Fabio.
Jun 25, 2003
35,664
#15
USA does and that's what I was talking about, because in the USA you've got competitive private health insurance market. If one company doesn't pay it will go out of business.

The answer to the bolded part is this: Because in the real world insurance companies pay in most of the cases.
In the real world? As in the world that I work in as an insurance lawyer? What's your job?
 

Juliano13

Senior Member
May 6, 2012
3,863
#16
Out of curiosity; what school of economics do you adhere to?
I don't like these labels because I believe in different things from different schools but lets just say I don't adhere to any heterodox school, including the Austrian. I like the Chicago School, but I like some parts of the New Keynesian school, too. And New institutional economics has some good ideas.

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In the real world? As in the world that I work in as an insurance lawyer? What's your job?
Which country? I work in finance.

I'll try to move this debate forward, you make it sound as if all or most of the patients don't get paid and that's wildly inaccurate. The question is what percentage of the claims are unjustly refused (in the US).
 
OP
OP
Seven

Seven

In bocca al lupo, Fabio.
Jun 25, 2003
35,664
#17
I don't like these labels because I believe in different things from different schools but I lets just say I don't adhere to any heterodox school, including the Austrian. I like the Chicago School, but I like some parts of the New Keynesian school, too. And New institutional economics has some good ideas.

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Which country? I work in finance.

I'll try to move this debate forward, you make it sound as if all or most of the patients don't get paid and that's wildly inaccurate. The question is what percentage of the claims are unjustly refused (in the US).
Belgium. Insurance companies can't be trusted to pay in healthcare, because everyone needs healthcare all the time. Insurance is built on the fact that most people need it. If healthcare comes down to the insurance companies they'll have to find ways to deny claims.

And then there's old people and cancer survivors who are uninsurable in such a system.

You haven't given any of this any thought though.. Just because you believe in some outdated economy model. Insane.
 

Juliano13

Senior Member
May 6, 2012
3,863
#18
Belgium. Insurance companies can't be trusted to pay in healthcare, because everyone needs healthcare all the time. Insurance is built on the fact that most people need it. If healthcare comes down to the insurance companies they'll have to find ways to deny claims.

And then there's old people and cancer survivors who are uninsurable in such a system.

You haven't given any of this any thought though.. Just because you believe in some outdated economy model. Insane.
Which model is that? And which model do you believe in?
 

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