Thursday, November 1, 2018

Cross subsidies and monopolization, explained

I found a beautiful, clear, detailed, fact-based, and devastating explanation of how forced cross-subsidies, monopolized markets, and lack of competition conspire to strangle the American health care system.

No, this was not on some goofy libertarian website. It was in the official Voter Information Guide, for the ultra-progressive state of California, authored by "the legislative analyst." Whether the analyst is a secret libertarian struggling to get the word out, or simply that this is so much the way of doing things in California that nobody notices the scandal of it all, I do not know.

Starting on p. 62, with my emphasis

Ambulances Provide Emergency Medical Care and Transportation. When a 911 call is made for medical help, an ambulance crew is sent to the location. ... (Ambulances also provide nonemergency rides to hospitals or doctors’ offices when a patient needs treatment or testing.)

Private Companies Operate Most Ambulances. ...  State law requires ambulances to transport all patients, even patients who have no health insurance and cannot pay. ... 
Commercial Insurance Pays More for Ambulance Trips Than Government Insurance Pays. The average cost of an ambulance trip in California is about $750. Medicare and Medi-Cal pay ambulance companies a fixed amount for each trip. Medicare pays about $450 per trip and Medi-Cal pays about $100 per trip. As a result, ambulance companies lose money transporting Medicare and Medi-Cal patients. Ambulance companies also lose money when they transport patients with no insurance. This is because these patients typically cannot pay for these trips. To make up for these losses, ambulance companies bill patients with commercial insurance more than the average cost of an ambulance trip. On average, commercial insurers pay $1,800 per trip, more than double the cost of a typical ambulance ride.
Not stated, just why do commercial insurers put up with this? The answer is, that you need government approval to run an insurance company in California, and an insurer who said "we're not paying for that" won't be allowed to do business in California.

Also not stated, just what happens to you if you don't have health insurance but actually are the type who pays your bills? Good luck.

Counties Select Main Ambulance Providers. County agencies divide the county into several zones. The ambulance company that is chosen to serve each zone has the exclusive right to respond to all emergency calls in that area.
If you want to know why there is no competition in the 911 ambulance industry, now you know. I don't know about private, non-911 ambulances. Is this all just exploiting the convenience of 911? Can you get a competitively priced ambulance ride if you know who to call?
The company generates revenue by collecting payments from patients’ insurers. In exchange, the ambulance company pays the county for the right to provide ambulance trips in that area. The county typically chooses the ambulance company through a competitive bidding process....
So cash strapped counties are in on the business of fleecing insurance companies, and through them, people and businesses who pay premiums.


  1. Wouldn't you just call an Uber?

    1. California probably has a law prohibiting hospitals from accepting significantly ill or injured patients who arrive via Uber. Or a law prohibiting Uber from accepting passengers who are ill and ask to go to the hospital.

    2. Many people do just that.

    3. Turns out, yes:

  2. Egads. Regulatory capture is the norm, of course.

    I am throwing in the towel. I propose VA type system for everybody and let's be done with it. Cap outlays that 15% of GDP, and we would spend 5% less than we do now.

    I guess government owned hospitals and healthcare programs at least work. No one is proposing to privatize the VA or military hospitals.

    1. Really, just ask a veteran who uses the VA if they "work!"

  3. sounds like there is huge scope for an UberAmbulance (or a LifeLift) - soon enough most people won't know how to dial a number on a phone anyway...

  4. sounds like there is scope for an UberAmbulance (or a LyfeLyft) - soon enough most people won't know how to dial a number on a phone anyway...

  5. Indeed, David Slusky of the University of Kansas shows that when UberX enters a city, ambulance usage falls by about 7%. There are a bunch of good mass-media discussions for which one can Google, and the original paper is here:

  6. Glad to see you're back in action, Dr. Cochrane. :)

    So, in this Government and the Micro-economy class, we have two units devoted to health care in the US. Are we discussing cross subsidies?!? Nope! But, we should be. I'm trying to beat the drum on this a bit and trying to bring it to the forefront, because I see it leading to a problem of adverse selection and an eventual market failure.

    The class brings up "3 devastating facts" when it comes to health care in the US:

    1. 18% Of GDP on health care (2014).
    2. Unremarkable outcomes for health.
    3. Only OECD nation not to have universal coverage.

    So, yeah, we go through all this, and say, oh, look, UK and Germany have universal care. Yeah. They also have high tax burdens. Which of course makes me wonder about budgets being fudgable -- in the end, we all pay one way or another. Whether it goes to insurance companies or the government (taxes) doesn't seem to matter. What does matter is health itself having high utility. Is that itself in the aggregate a good positive externality to have, hmmm? My thinking says yes because of productivity. A healthy society can potentially do more.

    This ambulance nonsense is a staple down here in Southern Cal. All sorts of mini monopolies. There's even mini monopolies for blood testing, too. Have to go where they send you.

    I mean, all of it is enough to send you into a depression. Mental health services, anyone? Yeah...

    Seems like no matter where you go, there you are, when it comes to problems with financing health care.


  7. "Whether the analyst is a secret libertarian struggling to get the word out, or simply that this is so much the way of doing things in California that nobody notices the scandal of it all, I do not know."

    It's the latter, and everywhere, not just California. A $1,050 tax applied on the basis of suffering an accident should cause shock and outrage on BOTH sides of the political spectrum. But it's 2018... our capacity to be troubled by case studies demonstrating the failings of our healthcare system is pretty much spent at this point.

    This is cause for great concern... voter reaction to healthcare policy is beginning to feel like the parable about boiling a frog.

  8. As a side note, not being an American I find it quite amazing that the state of California would provide a rather detailed description of issues put on the ballot. I doubt that many people actually read it though.

    1. Yes, this is the wonder of America. I think "glasnost" is the term for it that Gorbachev revealed. Everything out in the open. For everybody to ignore, or notice, as they choose. Unfortunately the mix has been polluted by huge amounts of disinformation. So even those who try to look do not see.

  9. Really John? Do you actually think that this situation is only repulsive to libertarians? I think that most rational-minded people are appalled by the mess that is America's excuse for a health-care-system. I am sure that Marxist economists heap scorn upon it.

    1. Well, it's a hybrid system. It's for profit, the private insurance market. That's why the individual market sucks and for those that have health insurance through their jobs, it creates a larger pool, which spreads the risk, allowing insurance companies to make a profit. After all, they're in it to make money, not break even or lose money. 7T+ in assets held by the entire insurance market doesn't lie.

      The ACA was designed to expand the pool so that all risk was spread. But, it's a sort of health redistributive system designed to prevent market failures via adverse selection. If you're healthy, you're essentially subsidizing the sick with a surplus of health and whatever money that's aggregated by the healthy, that don't require major costs to insurance companies.

      But, somehow or another, these mini monopolies are fleecing taxpayers and the insured. Why governments allow this to happen, I do not know. I have some ideas, but who wants to start conspiracy theories. My guess is that they're holding populations and governments hostage by saying if you don't give us these monopolies, we can't stay on business. The whole cost structure is a mess.

      I'm all for business being successful, but at what price? I'm all for people having jobs in the health industry, because, yes, they need to live, too.

      Is there a better way? I don't have an answer yet. Ha.

  10. The solution is to make ambulances a public service, i.e. a part of the fire and police departments. Ambulance employees would work for the government.
    The cost of all ambulance companies would be added to federal or state taxes.

    I do not have the numbers at hand, but I suspect that the addition to taxes
    would be well under 1% of income.

    I do not advocate this for all aspects of medicine, but this aspects cries out to be a public service.


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