Hyperbole Alert

In a post about the rise of our financial services industry, Prof. DeLong delivers an aside he is far too savvy actually to believe:

Do not get us wrong: we do not hate service industries. But most service industries produce something of value in return for their profits. Health care administration simply produces denials of coverage. ...There are two ways to make money in health care: (i) by providing people with valuable treatments that they are willing to pay for, and (ii) by collecting insurance premiums and finding some excuse not to pay them out when people get sick.

Well, don't get us wrong, either - we enjoy a cocktail party quip as much as the next person.  But seriously - how many people would like to have an insurance company that never questioned a claim?  Everyone!  Until they saw the premiums, that is.  No one is imagining that there are no horror stories of abuse, but by and large insurance adjusters hold down premium costs by weeding out inappropriate claims.

As an alternative model, consider Medicare, which is generous in its coverage.  Per 60 Minutes (or MSNBC), Medicare fraud is a $60 billion per year rip-off of a $500 billion per year enterprise [but this earnest lib argues that the $60 billion is unsourced and surely high].  Maybe if the government spent a few more billion on reviewing claims a big chunk of that $60 billion could be put back in the taxpayer's pocket. 

My guess is that Congressfolk would rather hear horror stories of crime than horror stories of granny being turned down by a government bureaucrat.  And since it is their voters but not their money, here we are.

ASK A SEEMINGLY SIMPLE QUESTION:  There is a huge gray area between outright fraud and legimate billing, as explained here.  Back in 1997, the Office of the Inspector General of the GAO concluded that 14% of Medicare bills were improper; that seemed to have been halved by 2000.  And what has the OIG done for me lately?  Good question - why can't I find anything more recent?

AND ANOTHER THING... One focus of the DeLong post is to puzzle over why the financial services sector become such a large part of the US economy.  Yet I feel as if a chart is missing (I am also feeling weirdly dataphobic so I could use some help on this) - financial assets have been growing faster than GDP in the US and around the world since at least 1990, per this McKinsey study (p. 9).  So where is the chart comparing the profits of the US financial sector with total financial assets in the US?  The Federal Reserve presumably has the relevant data right here, but I saw the phrase "ZIP file" and locked up even before my laptop did.

 

Comments

[Extraneus]

I hope cathyf won't mind...

Even if you are in a healthy group, you're being taken to the cleaners: you're paying the insurance company a percentage to "administer" your "insurance", ie, to limit what the doctor can do for you and to write the checks for you.

That's not being taken to the cleaners, that is the perfectly rational action of hiring the "insurance" company to act as your negotiating agent. People hire agents to negotiate for them all of the time. The "benefits administrator" has all sorts of technical expertise that (even I, who am expert at virtually everything ;-) cannot match.

Latest in my saga: my doc told my benefits manager that he wants to charge $157 for my last thyroid blood test. Bene manny said no way, $36.15 is what she pays. So now that's what I'm paying...

People rely upon negotiating agents and third-party markets for price discovery all of the time. Drive your truck of corn up to the grain elevator and you will receive a price based upon what's been set by a bunch of guys yelling on the CBOT floor in Chicago.

Posted by: cathyf | February 17, 2010 at 02:24 PM

[Cecil Turner]

And since it is their voters but not their money, here we are.

The root of all government inefficiency, IMNSHO. (And hence the critical "service" private health care administration provides: someone with a vested interest in keeping it solvent.)

It frankly amazes me that anyone who is even a casual student of government can miss on this point. Finding ways of neutralizing individual waywardness and the effects of factions is practically the entire theme of The Federalist, and the communists provide a wonderful cautionary tale for those who missed the point. Yet practically every leftist hails NGOs as if they are immune from corruption, and the profit motive as inherently evil, without even recognizing there's a connection.

[Extraneus]

One more from cathyf, this one from last December...

I'm coming more and more to believe that the whole bill is predicated on destroying the insurance-company business of riding herd on health care costs. The "no copayments" is just a little piece of obfuscation to hide the cost increase.

Right now we have a system which is bureaucratic for sure, but a series of private bureaucracies. It has particular incentives:

1) Insurance companies act as expert agents for patients. They police doctor/hospital bills for fraud, abuse, errors and simple reasonableness.

2) There are multiple insurance companies, all competing for business. The way that they compete is by providing value for the premium dollars. There is a balancing act -- they squeeze the providers to prevent them from ripping off the patients, but they can't squeeze them much further than that because providers will refuse to do business with unreasonable insurance companies, at which point their policyholders will depart to other companies where they get health care when they are sick for their premium dollars.

3) Because insurance premiums are set by competition, those insurance companies that succeed more in controlling costs get to keep the money saved, while those that are less successful lose right out of their bottom lines.

The main mechanism of the "reform" bill is to put most of the insurance companies out of business by setting loss ratios by law (the House bill sets them at 85%.) As soon as most insurance companies are gone, those few which manage to hold out until the end become monopolies which can then raise premiums and/or ration care. The "loss ratio" provisions have a simple arithmetic reality: the law requires inscos to take a smaller cut, so in order for insurance companies to bring in enough revenue in the future to survive, they must take that smaller cut out of providing less medical care for more money.

The "no copay" is about attempting to hide it when the healthcare costs go up. Take the mammogram as an example:

Current system:
-- Hospital wants to charge $397 for mammogram.
-- Insurance company says "dreamski onski" and says $162.50.
-- Insurance pays out $130 for mammogram, while patient pays $32.50
-- Patient also pays $200 in premiums that go to pay the $130 + $70 that the insurance company uses to run the business.

Total cost to patient: $232.50
Net overhead to insurance company for administration of one mammogram: $70
Revenue to hospital: $162.50
loss ratio: 65%

System post "reform"
-- Insurance company pays out the full $397 without squawking.
-- No co-pay.
-- Insurance company collects $467 in premiums to cover the $397 in claims and $70 overhead. They are allowed 15% in the "reform" regime, and $70 is 14.99% of $467.

Total cost to patient: $467
Net overhead to insurance company for administration of one mammogram: $70
Revenue to hospital: $397
loss ratio: 85.1%

There are other variations, which result in collecting smaller premiums, but then refuse the mammograms to more women...

But the bottom line is to demonize the insurance companies for exactly the service they provide which has the highest social value, that of policing healthcare providers and keeping costs down.

Posted by: cathyf | December 02, 2009 at 11:24 PM

[jimmyk]

Yes, Obama and others on the left like to rail about administrative costs of private insurance, always using statistics about the ratio of those costs to total spending, as if a bit more on administrative costs that lowers total spending is a bad thing. Idiots.

[Sue]

They are reading John Grisham books.

[clarice]

Cathy and TM take DeLong to the cleaners on this one. Is the professor so clueless about government, markets, human behavior? I guess so. But to me he sounds more like a freshman from Marin County,

[Extraneus]

"By avoiding some of the overhead that gets eaten up at private companies by profits, excessive administrative costs and executive salaries, it could provide a good deal for consumers." -- Barack H. Obama

"Centralization of the means of production and socialization of labor at last reach a point where they become incompatible with their capitalist integument. Thus integument is burst asunder. The knell of capitalist private property sounds. The expropriators are expropriated." -- Karl Marx, Capital, Volume I, Chapter 32 (1867)

[Rob Crawford]

Cathy and TM take DeLong to the cleaners on this one. Is the professor so clueless about government, markets, human behavior?

DeLong is yet another in the long list of people who are prominent for no apparent reason.

[Jack is Back!]

Clarice,

Are you back in DC for Alan West's seating? Is he having a reception?

[clarice]

No,JIB. I got an invitation to his swearing in but I will not be back then.

[Neo]

But the most interesting comment appeared to be a back-handed compliment. When asked about Obama's biggest misconception, Haggard, 73, said, "He's not conceited. He's very humble about being the president of the United States, especially in comparison to some presidents we've had who come across like they don't need anybody's help. I think he knows he's in over his head. Anybody with any sense who takes that job and thinks they can handle it must be an idiot."

[centralcal]

Too funny, Neo! Guess ol' Merle just called Bammers an idiot.

[Jack is Back!]

Cc,

From one idiot to another!

[Boatbuilder]

Delong may understand the difference between health insurance and auto collision coverage, but he's not a whole lot sharper than our esteemed presidente. Yikes!

[Ignatz]

All I know is last year, prior to the great and benficient government takeover of healthcare, when costs were out of control and we absolutely had to do something, anything, no matter how stupid, my quarterly BS bill was $1750.
With the new year and the implementation of our great leap forward, letting 100 flowers blossom while undergoing our own sort of cultural revolution, effective March 1st it will be $2625, a rise of exactly 50%.
Thanks Chairman Barry.

[Sue]

Stop the presses. A life-long democrat likes Obama. ::eyeroll:: I bet they think Haggard was born and raised in Oklahoma too. ::another eyeroll:: Next, we'll find out Willie likes Obama too. ::last eyeroll::

[Rob Crawford]

Next, we'll find out Willie likes Obama too.

Naw. Obama bogarted Willie's joint.

[Jack is Back!]

CC,

Haven't heard much from about this article in IBD "Fresno, Zimbabwe". LUN

[Sue]

Naw. Obama bogarted Willie's joint.

The things that make liberals go ga-ga amazes me. Merle Haggard being a republican would have garnered news at a time when everyone he was performing in front of was democrat. There was a time when being a democrat in the south was a right of birth, not choice. That Haggard remained a democrat when his fan base probably didn't is news...maybe. That a democrat tries very hard to like a democratic president? I'm not sure why they bother anymore.

[Sue]

Actually, the real news here is Merle Haggard can still put his boots on and walk into an awards ceremony. Have you seen him lately? The booze has taken its toll on him. Regardless, his music will always be a huge part of my childhood and I have a soft spot for him. And maybe, just maybe, he was really doing a backhanded compliment to Obama and not just a drunk thinking his words were words of wisdom.

[daddy]

Bought an Isuzu P'up used pick-up truck for $500 once in Anchorage in 1984, and had 3 days to drive it to Seattle, 2,448 miles via the Alcan.

Found 5 or 6 tapes in the glove box. Gave a listen to each as there was virtually zero radio coverage, and by 100 hundred miles out of Anchorage had already dumped the Madonna and other 4 tapes as they were awful. That left me with a single leftover homemade Merle Haggard tape as my companion for the next 2 and a half days.

Have always hated country music, but I know every syllable on that tape and will take those decent tunes to my grave, especially ">http://www.youtube.com/watch?v=TJGKpS8RQwU"> Big City. Can't imagine driving the dirt unpaved backroads of Canada at 80 miles an hour for 48 hours straight listening to anything but Merle.

[centralcal]

JiB: Yes - talk radio was all over it here, locally. HotAir's Ed Morrisey is covering it and I left a comment there for all the good it will do.

Yes, California liberals are insane and they seem to have all the voting advantages (union thugs, hint hint), plus gerrymandering that insures our statehouse is controlled just the way they like it.

I love the state - it's physical beauty, it's productivity. However, I now pray for complete bankruptcy. Phoenix cannot rise from the ashes without first self-immolating. Look on in horror, all ye other states and beware. Don't let the liberals take you over. Many (not all) who are fleeing California for other states are taking their liberal craziness with them. Be on guard.

[daddy]

Jane,

Insty says somebody is pushing your idea as a Constitutional Amendment:

">http://thevailspot.blogspot.com/2010/12/constitional-amendment.html"> Proposed 28th Amendment to the United States Constitution:
"Congress shall make no law that applies to the citizens of the United States that does not apply equally to the Senators and/or Representatives; and, Congress shall make no law that applies to the Senators and/or Representatives that does not apply equally to the citizens of the United States ."

And really enjoyed your 16 December Podcast. Am enjoying Dick's continually stated exasperation at the Dem's not hearing the message of the voters in the last election.

[Threadkiller]

JiB,
As usual the rest of the country finds out later what idiots can do for California, they can do for the Country or even the world.

McClintock September 2009

">http://mcclintock.house.gov/california-water---rep-mcclintock-asks-secretary-salazar-about-the-delta-smelt.shtml"> Boot in Ken Salazar’s neck over the water issue.

And McClintock October 2009

Those who blame the drought for the tragedy unfolding in California’s Central Valley ignore the fact that this is a very mild drought by historical standards and that in far worse droughts in the past, far more water was delivered to the Central Valley. I wonder if the proponents seriously deny that 200 billion gallons of water have been diverted to meet various environmental regulations. It is morally unconscionable that water recycling bills to benefit the pampered and privileged communities of San Francisco can sail through the House, while 40,000 families have lost their jobs in the San Joaquin Valley because this government has diverted 200 billion gallons of water in order to indulge one of the environmental Left’s pet causes, the Delta Smelt.

">http://mcclintock.house.gov/2009/10/hr-2442-miller-water-recycling.shtml"> Text ">http://www.youtube.com/watch?v=02lYCnP4AAs&feature=channel"> Video

The Agony of the Centray Valley by McClintock January 26, 2010

Despite heavy rains over the past month, the Administration continues to blame a relatively mild drought for the fact Valley farmers will receive only five percent of the water they are entitled to. This does not explain how, in far more severe droughts than this, Valley farmers have received far greater allocations. Nor does it explain how these massive water diversions for the Delta Smelt are justified if supplies are so constratined. Had the Democrats come to Fresno, they would have heard and seen the anguish of the people of the Central Valley of California. The water diversions have destroyed a half-million acres of the most productive farmland in America and thrown 30,000 Central Valley families into unemployment. They would have heard the stories of food lines in communities that once prided themselves on being the breadbasket of the western United States. They would have heard about the frustration of seeing produce imported from China being handed out in those food lines to the very same American farmers who once supplied the same produce to the world.

">http://mcclintock.house.gov/2010/01/the-agony-of-the-central-valley-1.shtml"> Text
">http://www.youtube.com/watch?v=_jYhMIfw8oU"> Video

[clarice]

Today at AT Lifson compares the treatment of the Central Valley to Stalin's treatment of the Ukraine.

If Arnold weren't addled by steroids he would have fought for these4 farmers against the green extremists.

[Threadkiller]

CCal, I can't comment at Hot Air so I sent Ed an email with the McClintock links I just posted. I hope it gets more traction now. We will see.

[Sue]

daddy,

I was raised on country music and still love it, including Merle. Sing Me Back Home is one of my favorites. I also love Working Man Blues, Silver Wings and "tonight the bottle let me down and let your memory come around, the one true friend I thought I'd found..." still has me singing along at the top of my lungs.

[daddy]

TK,

Speaking of Salazar, in Alaska our Governor is suing the Feds to find out if there is a drilling moratorium in effect or not. We don't even know. Our Governor says there is a Moratorium, the Fed's say there isn't. Whatever the real answer, we remain without the required permission to drill in the Chukchi, so my guess is that whatever verbiage we wind up calling this moratorium, drilling is postponed by Federal mandates for at least another year. ">http://alaskadispatch.com/dispatches/energy/8069-federal-judge-seeks-arctic-offshore-moratorium-answer"> link.

[PD]

I had prostate surgery last year. Total bill was about $14K, $10K of which was for the hospital. My insurance ponied up for all but $1K of it, no questions asked. I was puzzled about the $10K bill for the hospital, though, given that I was in at 6 AM and out by 1 PM. So I asked for an itemized bill. When it arrived, it included such items as:

Bags of saline @ $90 per. (this is water with salt and sugar)
Catheter tube @ 60 per. (plastic tube; a little googling finds these for < $5)
recovery ward @ $1000 per 30 mins. I was there for 90 minutes. Sleeping it off.

So, in my book, if there is a "villain", it was not the insurance company, it was the hospital. I suppose you could argue that they're amortizing costs or something, but when I looked at that bill, what I felt was anger at the outrageous costs.

[Danube of Thought]

A brief tutorial on why waste, fraud and abuse are the least of Medicare's problems.

[Danube of Thought]

I'm with H.L. Mencken: there are those who like country music, and those who can stand it when they are drunk.

[PD]

Proposed 28th Amendment to the United States Constitution:

Let's go further: Any legislation that involves an increase in restrictions, taxes, or fees, shall apply to Congress *first* for a period of two years. Only after they demonstrate a willingness to be subject to their own loss of liberty shall they be allowed to subject the rest of us to it.

[glasater]

Photo I took of Merle the Pearl about seven years ago.
Can't think of the fellow's name behind him and to the right but I know he was married to Connie Smith.

It was fun to see how these entertainers travel in their "busses"--got the tour of those buggys and they're very nice.

[PD]

From the latest email missive sent to me by Tammy Baldwin:

With this session of Congress coming to a close, I cannot help but reflect on where we were just two years ago. When President Obama was sworn into office in January 2009, the economy was shedding 800,000 jobs a month and the country faced the worst economic crisis since the Great Depression. People were losing their homes or were at serious risk of foreclosure. Health insurance premiums were skyrocketing and more Americans were losing their coverage everyday.

My colleagues and I took bold action to address serious issues facing our nation. We enacted a recovery plan that made critical investments in our country’s future and rescued the nation from the brink of economic disaster; we enacted support for small businesses and individuals who lost their job through no fault of their own; we instituted stronger financial regulations to protect against another Wall Street meltdown; and we reformed our health insurance system to protect patients and extend health coverage to millions of Americans.

The results have been tangible and will be felt for years. The country has experienced 11 straight months of private sector job growth; credit cardholders can expect protection against double billing and other trick deals; and individuals with pre-existing medical conditions will no longer fear bankruptcy if they become sick.

She probably even believes it all.

[Sue]

glasater,

Marty Stuart.

[Porchlight]

I'm with H.L. Mencken: there are those who like country music, and those who can stand it when they are drunk.

Now to be fair, DoT, your beloved Stones have incorporated an enormous amount of country music into their work over the years.

[Jane (sit on the couch or save your country)]

Daddy,

I saw that and immediately posted it at YOU TOO. ANd I'm going to talk to the Tea party about putting that on our 2011 agenda.

[glasater]

Thanks Sue!

[Sue]

No problem. I know too much about country music. ::grin:: For instance, I could tell you Marty was once upon a time the son in law of Johnny Cash and a member of his back up band. I could tell you his genre is really rockabilly. I could go on but I won't. Aren't you glad?

[Porchlight]

I know too much about country music. ::grin::

Not too much at all, Sue. Everything you just posted should be common knowledge. ;)

[Danube of Thought]

They sure have, Porch. They originally wrote my all-time favorite tune, Honky Tonk Women, as a country tune. They recorded is as Country Honk on the Let It Bleed album. Love it.

[Rob Crawford]

The most important thing about country music?

My junior-high history teacher played the doctor who tells Loretta Lynn she's pregnant for the first time in "Coal Miner's Daughter".

[Threadkiller]

We got both kinds of music, Country and Western.

">http://www.youtube.com/watch?v=F5N35kQAPv0"> The Good ol’ Blues Brothers Boys Band

[cathyf]

Pretty cool... This morning we left to drive to my parents' house. I was about a day behind reading JOM threads, so I voted for Diva Clarice and refreshed all of my tabs and let them load on my computer before I left home. Then as WonderBoy drove, and dad-the-nervous-nelly-backseat-driver wasn't TOO obnoxious, I went to catch up. This can be a little frustrating, since it's strictly read-only and I can't post any comments.

But, no worries! Extraneus took care of posting for me!

[Porchlight]

DoT, I love that Country Honk. I was also thinking of Torn and Frayed and a lot of the other stuff on Exile and on Sticky Fingers (my personal fave album).

[glasater]

I should have remembered Marty Stuart's name 'cause I sure knew his wife's name:-)

I think -- if they're still married -- Connie Smith is older than Marty. And they had separate buses when on the road. It was the 'Barnyard' tour and was something to see up close.
I was on the stage during the whole show taking pictures and it was a super thrill!
It was a real education in photography under stage lights that were either bright yellow, red or blue --or a combination of the three.

[Danube of Thought]

Dead Flowers...Sweet Virginia...

[clarice]

Have a great trip and a good drive, Cathy. Kiss the wonder kids for me.

[Porchlight]

No Expectations...Dear Doctor...hell, at least half of Beggars Banquet. Wild Horses.

[daddy]

Sue,

Have listened to ">http://www.youtube.com/watch?v=NVq27glkY_A"> Tonight The Bottle Let Me Down about 20 times since you mentioned it before. Had never heard it before. What a great tune!

Where's my pick-em up truck?

[Pagar]

Can't imagine going though life without hearing all of Merle Haggard, George Jones, Tammy Wynette, Loretta Lynn, and hundreds of other country music singers. They are played every day here.

[cathyf]

Sixteen tons, whaddya get
another day older an deeper in debt
St. Peter don't get me cause I can't go
I owe my soul to the company store...

Big John
Coal Miner's Daughter

Hey, we got classic country here...

[cathyf]

I was drunk the day my mama got out of prison,
and I went to pick her up in the rain.
But before I could get to the station in my pickup truck,
she got run over by a dadburned train!

[Free download]

You mean, they couldn't tell from the grey pubbies on his balls who it was?!