Friday, February 27, 2009

The President's Plan

The President has now unveiled his proposed budget for the 2010 fiscal year. He has a large amount dedicated to trying to change the health care system. A key question is how this will affect not just the ability of individuals to obtain health insurance for financial protection and quality health care to maintain and improve their health, but how it affects the growth in the costs of care in the long run.

One good source of information on the President's budget is at the Kaiser Network.

Health information technology improvements may bring about many improvements in care. In the long run, better information systems may save money. In the short run, it will result in spending a lot of money to make the improvements in the system. Using government money to improve and bring some standardization to the system is not necessarily a bad idea since firms left to their own devices will not obtain all the benefits of standardization and may make enough of an investment either in information technology itself or in efforts to standardize. Key message: government spending is useful and probably necessary but will not necessarily save money in the short run.

What about more prevention? Prevention doesn’t always save money. For most prevention if it saves money it is only in the long run—except for flu shots which are generally available at a low price already. So, another item with more spending and not necessarily short run savings.

There is hope—however. The government will pay less to some insurers who provide coverage for Medicare beneficiaries. If the insurers can find ways to provide lower cost care (hopefully without compromising quality) that will save money in the short run. However, that is only because the government is leaving little option.

Finally, there will be efforts to end agreements between brand name and generic providers where the brand name manufacturer pays the generic manufacturer to delay production. This seems like a reasonable approach that should result in lower costs in the short run without putting consumers at risk.

So, we have lots more money in the short run. Some hope for long run cost savings. Some of the plan will result in short run savings—with potentially mixed implications for quality of care. Is this feasible?—Maybe. Will it be effective?—Only time will tell. Does it make the most sense?—There are a lot of people who think that ending the current system of employer sponsored insurance with coverage provided by private providers might make more sense, but it is a step in trying to rearrange incentives for efficiency and quality.

Thursday, February 26, 2009

An Economic "Superhero" and Healthcare

If economics had superheroes, Joseph Stiglitz would definitely qualify. Why? For the field as a whole, he won the Nobel Prize for economics in 2001. For me, I can’t say that I was dreaming of being “just like Professor Stiglitz as young boy”—I mean, what kind of six year old would know about economics heroes rather than cartoon superheroes. However, I honestly can say that one of his papers that was published when I was six was a primary inspiration for my doctoral thesis that I began writing 17 years later.

So, why mention Professor Stiglitz today? I was listening to the podcast of yesterday’s Democracy Now, and I heard him say that he had “reluctantly” reached the conclusion that a single payer system might be the “only alternative”. He noted that private health care insurers had demonstrated an inability to do things efficiently—i.e produce health insurance products at a minmum cost. In earlier entries I have alluded to some of the potential advantages of a single payer system or at least having only a single policy that could be offered by multiple insurers. I have been hesitant to say tha a single payer system is the only solution. However, I was amazed to hear one of my professional “heroes” say that a single payer system might be the way to go—most economists nearly always think of markets as providing the best answers.

So, should we believe Professor Stiglitz, or am I just beaming because I share the view of my professional hero? I think that we should listen to Professor Stiglitz—and so should the country’s leadership. In his paper that innspired my thesis, he asked, “What happens if a person who wants to be insured knows more about her risk than the insurer does?” So, Professor Stiglitz has been thinking about insurance, risks, changes in risks, and varying information about risks for a long time. Given 35 year of thinking and a novelty of ideas that won him the Nobel Prize, I think his ideas are worth considering. We should think about whether to go with President’s agenda that may only lead to small changes that do not necessarily do all that is hoped or or whether to ask our leaders for a more visionary change in policy.

Wednesday, February 25, 2009

More on the President’s Speech to the Joint Session of Congress

In his speech on Tuesday evening, the President called for “the largest investment ever in preventive care.” What would be the short-term and long-term economic results of such an investment?

First, we will almost certainly spend more money in the short run. Is the President trying to avoid this fact? I honestly do not think so. He chose to refer to the new spending as an investment in preventive care. Investments have a couple important characteristics that we need to remember. First, a return on investment can be a long time coming. Second, investments are often uncertain; the return on investment may be higher or lower than we expect. The stock market shows that. Even if the average return is seven percent per year, some years the return is higher and other years it is lower. The same is true for prevention. It is not always equally effective in all groups. Within a group, some people may still get the condition that is being prevented.

Second, we may still spend more money in the long run. I have noted previously that prevention doesn’t always save money. Spending more will not make the expenditure any more likely to save money overall.

The key question to ask when assessing whether “the largest investment ever in preventive care” is worthwhile is whether the gains in health that are almost certain to occur are worth the extra spending that is going to occur. “The largest investment ever in preventive care” should lead to the largest improvement ever (or at least nearly the largest improvement in recent times) in the public’s health.

Tuesday, February 24, 2009

The President and The Republican Response

The President called for making health care affordable for all Americans. One thing that we should consider is whether this means the same price for all Americans. What is affordable for a person with a $150,000/year income will be much different from what is affordable for a person wit a $25,000/year income. Making the price the same for both may not be the best idea. The person with higher income can make a lot more purchases of a good at a given price. Most of us don’t like the idea of charging prices for medical care based on income. But it is important to note that right now if both the individuals above get the same insurance policy through their employer, the person making $150,000 will actually end up paying less because they get a bigger tax break on the insurance premium. The insurance premium is not taxed. We are already not charging the same price for all individuals getting insurance. Perhaps we should be willing to at least ponder a sliding scale of fees for the care itself.

After the President’s address, The Governor of Louisiana said that government running the health care system is not the answer. As far as I read the President’s agenda, having the government run everything was not part of his agenda. While there are many advantages to the free market, the Governor’s claim that a free market system can result in care hat is available to and affordable for all seems hard to imagine. While we do not have a perfect free market system at present, the system right now is closer to free market than totally government run. We certainly do not have a system that is affordable to all at present.

This is a time to avoid partisan politics (as even the Governor of Louisiana said that we should be interested in the quality of solution rather than the part of the person making the suggestion) and think very hard about the incentives that any plan sets up, whether they are any different from the incentives we have at present, and how the change in incentives will bring about any change in the results of the system—particularly controlling the level and growth of costs—over time.

Monday, February 23, 2009

Hidden Rationing

If you are following the news about the President's stimulus plan you may have heard about extra money for comparative effectiveness. Then, you will undoubtedly hear about whether this creates rationing in the health care system. Certainly this would create a different type of rationing than we have had in the past but if I were to claim that our health care system does not ration at present I'd be missing some an important aspect of the way our system operates at present.

Some people have more generous insurance than others. Care is implicitly rationed for those who have the less generous insurance.

Some people live further away from health care providers than others. Care is implicitly rationed for those who live further away.

Getting back to the issue of pre-existing conditions that was mentioned a couple days ago, some people find it more difficult to get insurance. That makes it more difficult to obtain needed care. So, another aspect of rationing.

Assessing comparative effectiveness and making decisions about what should be covered--this would be rationing too. It would just be more explicit. However, we should notice that however decisions are being made at present, some insurers do not cover some services already. So, those services are rationed.

Suppose, as the President's health care agenda suggests, we were to cover those who had pre-existing conditions more generously than we do now. Somebody will end up paying more--either the taxpayers under a government subsidized system, the individual who gets insurance but has a higher premium, or everyone who is insured as the premium is spread around. When all is said and done, that may make it less rationing for the individual with the pre-existing condition, but more rationing for others. Even if the government ends up paying for it--either more taxes get collected now (and we ration what we can spend on other things), more taxes get collected later to pay it back (and our kids and grandkids ration), or we don't get other government services.

So, in one form or another care will be rationed. We just have to decide what works best while trying to improve our health. As always in economics--tradeoffs.

Boutique Medicine

Some students in classes I teach are concerned about the emergence of “boutique medicine” where providers set up shop and make access to their services a lot easier, but there are many extra fees and the providers do not take insurance. The concern is that access to good primary care will eventually become limited for less wealthy patients. Is this concern warranted? Probably not. In the end, this type of service is unlikely to make a large impact on the industry for providing medical care services. Let’s follow the logic.

The demand for boutique medicine is relatively inelastic (i.e. the quantity tat will be used does not change much with changes in prices) for the industry as a whole and for each provider. The demand is relatively inelastic for the industry as a whole because people who can afford this type of care do not tend to be extremely price sensitive. Also, where there are lots of other options for medical care there are few substitutes for this level of service. The demand is relatively inelastic for each provider since there are a limited number of providers and the providers are not perfect substitutes for one another.

As the number of physicians choosing to practice this way grows larger potential patients will recognize greater opportunity for substitution among these providers. As a result, this part of the health care industry is likely demand for each provider is likely to become more elastic. This will push down the price that any one can charge. This will make it less interesting for other providers to join this part of the industry.

It also may be the case that the early adopters of this method of providing medical care are different from potential later providers. In other words, maybe the physicians who chose to practice this way first were uniquely suited for this type of practice. Later providers may not be able to provide as high quality services and the outcome would be that patients would see these services as less differentiated from general primary care.

In addition to all the supple side issues mentioned so far, there is no guarantee that there are all that many patients who could afford this type of arrangement. Limited demand will discourage too many providers from joining boutique practices.

Finally, if an extraordinary number of physicians began to take this approach, then other health care systems would find it necessary to pay the physicians who remain in a traditional practice setting more to keep them in this setting. How much more depends on a whole variety of factors. But, the market should be somewhat self-correcting.

So, in the end, there is not good evidence that a very large number of physicians could be supported providing boutique care. If a large number did switch to this type of care arrangement, the market should take care of itself. In the latter case, the fees for basic primary care may increase. That would disadvantage some, and hopefully there would be ways of subsidizing this group or finding more efficient ways to provide care in general. While this last point cannot be guaranteed, it is definitely not the case that the emergence of some boutique care services poses a threat to the health of the general public.

Saturday, February 21, 2009

Covering Pre-Existing Conditions

One piece of health care reform that has been long discussed but not resolved is what to do for people who have pre-existing conditions who want to change health insurance policies. Changing policies could occur for many reasons. This could happen because the person is changing jobs, or because the small employer for which the person works is changing insurers, or because the person is a new college graduate who is looking for the first job that actually offers health insurance as a benefit. People who move from one large employer to another do not often have difficulty getting pre-existing conditions covered, although even this type of job movement is sometimes associated with a lack of coverage for pre-existing conditions. Sometimes people end up with a condition called "job lock" because they cannot remain insured for a pre-existing condition without staying in a job that they may want to leave.

So, what to do? Should insurers be required to cover such conditions? That is one option and is part of what is described by the President's plan. However, expenditures associated with a pre-existing condition are not "uncertain". Insurance is intended to cover unexpected or somewhat random expenditures. Of course, from a lifetime perspective, all costs are unexpected. However, very few insurance policies in the United States are lifetime commitments.

For costs that are relatively certain, if we require insurers to cover them, we will have to pay not only the costs of care but also the markup that insurers charge. In that case, we'll end up paying more for the care than necessary. Policy makers should be open to rethinking the nature of a possibly longer-term commitment between the insurer and insured and whether the relationship should remain private or move toward a more public financing framework. There is no easy answer for this. Making the risk public (e.g. Medicare) is one possible solution but not one consistent with values embedded in the US health care system at present.

Friday, February 20, 2009

Is nursing like economics?

A student in an online class I am directing was trying to relate her nursing skills to the economics that I am trying to teach. She indicated that the proverbial "light bulb" went on when she reached the conclusion that nursing really may be a lot like economics.

Here is her logic. Nurses' roles in patient care can involve making assessments of the benefits and "costs" of treatment options and making decisions about when the benefits do and do not outweigh the costs. An example--a patient in the hospital who needs to get up and out of bed for some amount of time each day in preparation for discharge. The exercise that comes from getting out of bed has the benefit of making the person more ready for discharge. But the exercise is an effort. The patient will eventually tire. There may be risks of falling. At some point the risks and increase in tiredness of more time out of bed and more exercise outweigh the benefits of the exercise. The nurse may be asked to make a judgment as to when the costs become higher than the benefit.

Similarly, one thing that health economists do is measure the costs and benefits (or effectiveness) of different treatment options and suggest whether the treatment option is worth using at all and how much might be worth doing.

While the decisions are similar it is important to note that nurses perform their job tasks on a patient-by-patient basis. And, an individual patient's health (and life) depend on the nurse's action. Economists work with averages in a population. Will the average benefit be enough to merit spending the average cost? Some patients will have higher costs and some will have lower costs. Some patients will have more benefit while others have less. The average health of patients is affected by economists' recommendations but not the health of individual patients at the time the economist makes his or her decision.

In conclusion, if nurses were as imprecise as economists, we'd have a lot more patients in ill health. However, the analogy is worth considering. Many jobs involve assessing tradeoffs between different actions, so others may also be able to use this analogy to help them understand how economists think about the world.

Thursday, February 19, 2009

The President's Health Care Agenda

The President's health care agenda (although not much of a plan yet) is outlined for all to read on the following website: The plan includes eleven bulleted points and a few extra details. I will not discuss the entire plan this evening but I will focus on one bulleted point: to require hospitals to collect and report health care quality and cost data. Economists like to assume that consumers will use all information that is available to them. However, we often make decisions based on habit rather than based on a rational assessment of all information. Further, many times when using a hospital, individuals are making an urgent or emergency decision. This limits our ability to make rational use of data as we don't have time to consider all possible options and all implications of those options.

Additionally, there are still issues of geographic proximity and pre-existing relationships with providers that will not change. People don't like to change physicians and ultimately people will generally go to a hospital that is the nearest in many cases. Thus, collecting and reporting cost and quality data will change expenditures on health care slowly at best.

Finally, consumers' ability to use the information very importantly depends on who aggregates the information, where it is kept, and how it is made accessible to consumers. Working only with the agenda that is on the web and not the entire plan, the best we can do is hope that the United States leadership in 2009 thinks long and hard about the best way to provide incentives for gathering high quality and accurate information, to provide a forum for storing and sharing the information, and to provide consumers and health care providers with incentives to use the information.

Wednesday, February 18, 2009

Philosophy on Learning Economics

An expression my nine year old shared with me recently, “Do it. Do it now. Do it right.” He brought this home from school. If that is for an assignment for something like arithmetic in third grade, where there is only one way to do it, then this is good advice. Do your homework. Do it on time. Do it the way you are taught so that it is done right.

When thinking about how I learned economics and how I have tried to teach economics, I would change the expression. When it comes to learning the “art” of using economic logic, I would say that I have the following philosophy for my students: “Do it. Get some feedback and do it again. Keep doing it until it becomes second nature.”

Why the difference between third grade arithmetic and economic logic? Economic logic is an internally consistent set of ideas that give us the capacity to reason out all sorts of things. People who think like economists are good at reasoning out the direction of change in response to changes in incentives. People who think like economists are good at reasoning out the combination of supply and demand changes. However, there are a whole variety of combinations of changes that can lead to ambiguous results. The first step of “doing it” is simply using the economic logic that is available as a tool to try to reason things out.

Getting feedback does not necessarily mean “writing for an exam”. Rather, getting feedback can mean trying your ideas out with friends. It could be at the water cooler at work. It could be at the table at dinner. It could be at the coffee shop with an espresso. It could be at the bar with a glass of wine. The key is to see whether your ideas make sense.

Doing it over and over again essentially means “practice”. Just like any of us who wants to get good at anything would practice. A person will know when things are right. The will make sense, and the person who thinks like an economics will be able to anticipate what economists on the news will say. Maybe not every last detail—but the gist of things.

If a person does this enough times, it becomes second nature. A person need not always think that way. But the fact that the person can makes it possible for that person to understand a lot more about what economics says about how policy could change out future.

Tuesday, February 17, 2009

The"Lived Experience" of an Economist

On Thursday, February 12, I talked about preparing to speak about interdisciplinary research to a nursing research conference on Saturday February 14. The presentation went well. Prior to my presentation, I had the opportunity to walk through the posters that some of the nursing researchers had prepared to demonstrate their work. Several of the posters discussed particular “lived experiences”, for example, “the lived experience” of post-partum depression.

The concept of a lived experience is an interesting one to think about with respect to a profession. The other day on a radio interview with a physician and novelist, the guest talked about how he was always a physician even when he was writing. Part of his “lived experience” was that the identity of “physician” stuck with him no matter what.

My personal experience suggests that the “lived experience” of an economist is also something that permeates a person’s entire life. For example, a priest at my parish is the chair of the Department of Economics at a local Jesuit college (Loyola College). He is the only priest I have ever heard talk about marginal utility in a homily.

My own life is characterized by some “tell tale signs of having the lived experience of an economist”. While I sometimes think that people should “just cooperate because it is a good thin” (a very non-economic notion), I generally think about tradeoffs that individuals and organizations face; I using the phrase “on the one hand and on the other hand”; I think about the strategic choices that people might make based on their incentives; and I think about ways to give my children incentives for good behavior. It is not to say that others who are not economists use none of these. In contrast, it is to say that this list always come to mind for me. Even after 13 post-doctoral years, the 5 years of constant training continues to have a huge influence on my life. Still, I do question the economic logic every day. That is also a healthy characteristic of the lived experience of an economist who is not satisfied that his field has the answers but believes that with perseverance his field and its ideas may be able to continue to improve the quality of the explanations of the way the world works. Certainly, we can all agree that we need better explanations after recent events that followed from bad predictions.

Monday, February 16, 2009

Comment on “A Closer Look at the Economics of Disease Prevention”

In the February 4, 2009 issue of JAMA, Steven Woolf, MD, MPH, writes about an argument for disease prevention (pages 536-538). He stated that, “The question of whether prevention saves money is incorrectly framed. Health care, like other goods, is not purchased to save money. The dollar can be stretched further—more goods can be acquired—by optimizing economic value. The proper question for a preventive (or therapeutic) intervention is how much health the investment purchases.” On this point, I do not fundamentally agree with Dr. Woolf. In general the question is whether we are getting a good value for the money we are spending.

I do take issue with several things, or at least think that economics actually has a lot more to offer to the discussion than what Dr. Woolf suggests. Today, I will address two of these items.

First, Dr. Woolf seems to work from the assertion that employers, private insurers, and individuals should do things that are good for society even if the economic decision might be dubious for the individual decision maker. Now, those are not his words. Those are my words. They are, however, a summary of the argument that over a long time prevention saves money in most cases. That may be true from a societal perspective in which we take all costs and all benefits into consideration. Most decisions are not made from the societal perspective. Most decisions are made with a much more narrow set of costs and benefits in mind. The decision maker who must fund the preventive activity may not, in fact, end up seeing an economic return on investment from prevention. Arguing for prevention without a arguing for finding ways to adjust incentives is not likely to get us very far. This doesn’t contradict Dr. Woolf’s assertion that we should focus on value. It just reminds us that we have to be concerned about value to whom.

Second, Dr. Woolf makes the following statement: “Even if prevention and treatment cost the same per QALY, patients prefer the former to avoid the ordeal of illness.” If you want to read an entire book arguing about why people don’t always choose to avoid the ordeal of illness, pick up The Fattening of America by Eric Finkelstein. Dr.Finkelstein makes a coherent argument that people make tradeoffs in everything in life—even when the tradeoffs might be associated with being overweight. If I work longer hours, don’t exercise, eat less than an optimal diet, make more money to spend on my kids, and put on a few extra pounds, that is my choice. I could prevent the few extra pounds but I choose to get ahead in my career and earn some extra money. Or I stay up very late and then that also shows up in my health. So, presuming that all people prefer prevention to treatment is just not an argument I can accept. I would buy that “all else being equal not one would rather be sick”. However, that is not the question in the end as all else is rarely equal. There are always tradeoffs that come with prevention. Some people, understanding the risks, will still choose not to undertake prevention and take their chances on the disease.

Sunday, February 15, 2009

Discussion about "the octuplets"

Questions about the mother giving birth to octuplets have come up in a course I am teaching. One student pondered whether it really had to do with economics or whether it was just a discussion of ethics. The ethical issues are clear—should any IVF service provider have implanted that many embryos. Some might take the discussion further and ask whether there should have been selective abortion. Others might take it in the direction of asking about the ethics of IVF. So, clearly there is an ethics discussion here.

However, the discussion is also economic. Obviously, the care of these children will be costly and at least partially publicly paid. Thus, there are externalities associated with the mother’s behavior. Everyone can relate to asking why our tax dollars should be used to fund her decision to have so many children if we do not agree with her decision.

Beyond this financial discussion, the issue is an even more fundamental economic question. Most of modern microeconomics is based on the idea of consumer sovereignty. This is the idea that people make the best decisions for themselves—even if many others in society disagree with their decisions. This may apply to all sorts of decisions—smoking, weight control, number of kids we have.

For the question of how many children a person or couple should have, the key is “does the behavior deserve regulation or manipulation of incentives?” For the octuplets, let’s ignore whether the physician who performed the IVF services was providing medical care ethically. Suppose a woman could know that she was going to bring eight children into the world at once and it did not require questionable IVF procedures, would we consider this a behavior that should be regulated. If so, an economist would ask “What other individual behaviors do we think we should regulate? Where do we draw the line on things that we will not regulate? What penalty would we set up?”

The skepticism for regulation should not be inferred to imply that an economist would be perfectly happy to see a woman with six children giving birth to eight. The skepticism is simply part of the underlying assumptions that economists bring to the world—people should be able to make good decisions for themselves and regulations should be adopted cautiously lest we end up with an overregulated society with government controlling more decisions than we’d prefer. An economist convinced of the need to provide some regulation for this type of behavior would focus on incentives rather than direct regulation and finding a way to not harm the children who happen to have been born to a parent who made an apparently less than optimal decision.

Saturday, February 14, 2009

Single Payer System

Earlier this week Marc Steiner’s program on WEAA hosted several individuals who are proponents of a single payer health care system. Some see this as socialized medicine, and politicians shy away. Earlier, I addressed the issue of what we may (or may not) want to socialize as part of system reform over time.

Medical care providers who are proponents of a single payer system tend to focus on positive aspects. There are at least two good economic arguments for a single payer system for which I tend to agree with the proponents. As mentioned in an earlier entry, a single payer system may be more efficient because medical care providers need not deal with the multitude of varying forms that different payers in the United States use. This should make it less costly for providers to perform billing services.

The proponents also argued that a single payer system would facilitate patients’ free choice of provider. Under such a system, providers should have no incentive to discriminate among patients based on ability to pay. Consumers could, in theory, choose any provider. Economists consider more choice for consumers to be a good thing.

However, before we start thinking the economic logic fully supports a single payer approach, let us assess two additional potential outcomes. First, a single payer would have control the whole market share on the buyers’ side. A constant pressure in the United State health care system over the past 40 years (or more!) has been to control costs. A purchaser that controls the entire market is referred to as a monopsonist (similar to a monopolist who controls all the sales). A monopsonist in general influences prices. The government acting as monopsonist can use legal authority to set prices. What is to say that the prices will be set in a way that would rationally reward high quality care processes rather than rewarding special interest groups. Specific proposals may attempt to encourage the use the price setting to facilitate the provision of high quality care, but this is not a guaranteed outcome of the political process..

Additionally, financial access to all providers does not necessarily translate into a greater opportunity to use any provider. A person living on the west side of town who does not have a car may need to take two buses including a transfer to get to a provider on the east side of town. A single payer system would not change that. A single payer system would not necessarily result in more providers locating in rural areas in the short run. Further, there are existing patient relationships. As anyone who has tried to see a popular provider knows, it can take months for a new patient to see the provider—regardless of how generous the insurance is. A single payer system will not solve this either. Improvements in financial access are only one component of making it easier for people to use any care they choose.

Thus, while there are some solid arguments in favor of a single payer system, all incentives should be considered. Making policy without anticipating these outcomes may lead to a worse health care system than we have at present. This is not to say that we should not consider elements of a single payer system—only to say they should be considered with caution.

Friday, February 13, 2009

An economist in a world of non-economists

This afternoon and evening, I spent considerable time preparing to speak at a nursing research conference on Saturday. You may ask: what is an economist doing giving the closing plenary presentation at a nursing research conference? Well, the theme of the conference is "Interdisciplinary Research: A Road More or Less Traveled".

Let me take one brief tangent. The phrase after the colon in the theme has a number of possible meanings. It could mean that some people think that there is a lot of interdisciplinary research going on but there really is not. It also could mean that what is labeled as interdisciplinary research only sort of passes for the most productive way in which two academic disciplines could interact. And, it could lead one to think of the Robert Frost poem, "The Road Not Taken" in which Frost talked about taking the road less traveled by.

Good interdisciplinary research is in many ways "the road less traveled by". It is a challenge. It forces researchers to explain their world view to others and sometimes to rethink their world view. It forces researchers to bring together a variety of ideas and make sense of them in a new way. It is not easy.

Nevertheless, it is the type of work I truly enjoy. The open exchange of ideas. My colleagues' willingness to answer my questions about clinical or institutional situations I don't understand. My colleagues' willingness to ask questions about the economic lens for the world when they do not understand. When everyone engages in an exchange of ideas and used the opportunity to build new paradigms to explain the human and organizational behavior we observe in the world this type of research can be exhilarating.

A key barrier to doing this is that it takes a long time and a lot of effort to get the interdisciplinary aspect of the work right and not just to be two researchers from different disciplines working side by side, observing the same intervention, sharing data, but ultimately not taking in the world view and knowledge of the colleague. Readers may be impressed by each paper, but nothing will have been gained by having two collaborators from different disciplines. For the same of comparison, imagine two world class dancers. Dancing alone but side by side, onlookers might be amazed at the skill that each shows--but nothing is gained by dancing near each other rather than at separate ends of the stage. However, if the two dancers give a masterful performance dancing as a couple, the onlookers are likely to be truly amazed by the skill that is required to control one's own body and to interact. It is similar with interdisciplinary research.

Sometimes economists forget that our view of the world is not the only possible view of the world and may not even be the right view of the world. That does not describe all economists and may describe other disciplines. The point, however, is that if I am ever tempted to use an economic lens to view and explain the world without taking the time to explain it to others and be challenged by others, then what I think and learn is only relevant to a small group of other individuals who have spent years studying economics. The economic lens I use to view the world becomes very useful when I prove why it is important and am willing and able to help others understand that importance. The economic lens becomes most useful when that is combined with a sense of humility acknowledging that the economic lens is not the only way to view the world and that is may need to be "reground" on occasion to provide me with a clearer view of the world.

In that spirit, I share my thoughts and observations and look forward to feedback and challenges over time.

Thursday, February 12, 2009

Free Antibiotics

Some local grocery stores are offering free antibiotics through their pharmacies this winter. It started with a single chain and at least one other chain mimicked the decision. Why is this?

A nice story would be that the store is interested in public health and thinks that people would underutilize antibiotics if they had to pay the full price. For a segment of the US population this could be an issue. Certainly more people are without insurance now than at any time in decades in the United States. There is good economics evidence to show that pharmaceutical utilization goes up when people pay less for the pharmaceutical products. So, this could be part of the story.

The problem is that there is also evidence of overprescribing antibiotics in the United States. Not everyone was underutilizing care before the stores decided to offer free antibiotics. Some people always want the physician to give them something when they visit. Some physicians oblige their patients. Inappropriate use of antibiotics is potentially a problem because overuse can lead to the development of resistant strains of bacteria which we will then either need stronger medications to fight or have no medications available to fight them.

Another possible explanation is that the grocery store was not really thinking about the public health implications. From a PR point of view, it looks good to look like they are giving something away. If that creates more business in the store for pharmaceutical products, then the people who come to the grocery store will probably buy something else along the way. Even if the store loses money on the antibiotics, they will make it up in profits on other things that the customer buys.

The key to the last decision is that if one decision maker in a market (the grocery store) makes a decision based its own self-interest and doesn't consider all the effects (not just getting people in the store for prescriptions that would be filled anyway but potentially overutilizing prescriptions) there can be unintended consequences from which everyone else suffers.

Am I saying that if I had a prescription for an antibiotic this winter, I'd want to pay full price? Of course not--I'd rather get the prescription for free just as anyone else would. What I am saying is that I recognize that a decision for my benefit can sometimes have negative consequences for a larger group. Many economic decisions have that characteristic. One question we have to grapple with is how much we should regulate economic behavior to try to avoid such situations. To best answer that we need to determine which situations are most likely to be in the category of "good for some/bad for society". The example of grocery stores offering free antibiotics might not seem like his type of situation at first, but it is.

What is an economist's lens?

What is economics? A study of dollars and cents? A study of people using more or less of one thing as its own price or the price of something else goes up and down? A study of cost minimization and profit maximization? It is each of those, but it is also more. The key is that it really represents a whole way of thinking about the world focusing specifically on incentives. It is a system. It is a world view. Even though I try not to talk about the economics of marriage or the economics of going to church, some economists do. It is interesting to test whether theories that economists use to explain some behaviors that don't immediately seem economic actually work. And, while I try to avoid "overusing" economics, I know that I am nearly always thinking about it in the back of my mind as I assess any situation.

Wednesday, February 11, 2009

Socialized Medicine--Is it all bad?

One of the big questions we face with the potential for health care reform in the United States is whether we will end up with "socialized medicine". Economists often try to be very precise in their language. Simply saying "socialized medicine" is difficult to interpret because the term alone is not terribly precise. What might socialized medicine mean?

Socialized medicine could mean a truly socialized system--all facilities would be owned by the government, all providers at all levels would be employed by the government, and all citizens would be insured by the government. Such a system would potentially have a lot of problems with setting the right incentives and a lot of people might be very unhappy--particularly changing from the current US system.

At other extreme we could have a completely private, for-profit market--including everyone being responsible for their own insurance or paying for their own care. We clearly are not willing to do that in the United States as we don't like to see people go without care when it is available.

The key is what to socialize. The VA system in the United States is close to a socialized system for those who are eligible to use it. There are many complaints about the system but it provides care for a large number of military veterans. The Medicare program socializes risk for the payment for some services for mostly older adults. Again, there are some complaints about the system, but it has helped to provide basic coverage for millions over the past 44 years.

So, moving ahead the question we face is how much more are we willing to make a government responsibility on behalf of society and how much are we willing to leave to the market. We may find that transferring a bit more of the responsibility for insurance and subsidization of care to the government is inevitable to make sure that everyone has insurance and that there is less variation in the types of programs to make it easier for providers to file claims. However, even that is not guaranteed. The government could do as little as mandating coverage and then finding a way to enforce that regulation.

The politics in the United States will almost certainly prevent us from ending up with a fully socialized system any time soon and no one has made that proposal any time recently. We as a society have to make a decision on just how much power to leave to individuals and individual organizations and how much more responsibility to give our government--that already has quite a bit in health care. When considering the debate from an economic perspective we need to be precise about how the proposed level of socialization and other change will change the incentives everyone in the system faces.

Tuesday, February 10, 2009

Getting Started

Why blog with "Life through an Economist's Lens"? There are a number of reasons.

(1) When people find out I am an economist, they tend to want to ask questions. Sometimes I know the answers. Sometimes I think I know the answers. Sometimes I really don't know the answers any better than anyone else. Might as well share the answers and see what people think. From an economic point of view--more information is better.

(2) I teach about economics and health in a variety of formats. Each one has some online capabilities. There is no reason that I shouldn't share ideas across the classes with the students' permission. This will allow me to do that. From an economic point of view--more efficient.

(3) I just like to put ideas about life out there and see what people have to say. That has nothing to do with economics but is just a way to live, give, and receive.

Join me on the journey of "Life through an Economist's Lens".