tag:blogger.com,1999:blog-582368152716771238.post8245757385134989031..comments2024-03-18T07:59:05.430-05:00Comments on The Grumpy Economist: Cross-subsidiesJohn H. Cochranehttp://www.blogger.com/profile/04842601651429471525noreply@blogger.comBlogger20125tag:blogger.com,1999:blog-582368152716771238.post-10776837408196842512018-07-11T16:33:32.423-05:002018-07-11T16:33:32.423-05:00john, i recall a podcast from you where you said t...john, i recall a podcast from you where you said that the government needed to go industry by industry and deregulate.....that would promote growth..and growth can help with a lot of stuff like budget deficits...regulation protects existing players ...i agree about regu protecting existing players as shown by the article in bloomberg today. it talks of organic farm players protesting deregulation.....would love to see an article by you or one of your associates showing industry by industry regulations you felt should be repealed, what has been repealed by the current administration and what else needs to be donemedi77https://www.blogger.com/profile/14007812444803393290noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-19691544077624827732018-06-27T10:02:11.390-05:002018-06-27T10:02:11.390-05:00Most health care payors in the OECD member countri...Most health care payors in the OECD member countries are monopsonies. They set tariffs that establish what they will pay and then grant monopolies to service providers within specified service regions and specialties. Air ambulence services in the Canadian provinces fall under this scheme. Comparison of average costs charged to the health service would not be meaningful to an American context because of the differences in geography, population density, and hospital operations between the two jurisdictions, and the practice of universal health care coverage of medically-necessary procedures (patient never pays and has no out of pocket costs). In such a system, there is little need for, and often little recourse is made to, lawyers; nevertheless, malpratice law suits are not uncommon, and at least one member of one province's supreme court made a successful career in that field of law in his province before being elevated to the bench.Old Eagle Eyehttps://www.blogger.com/profile/05270080708077871311noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-77503830849273429672018-06-24T10:28:23.974-05:002018-06-24T10:28:23.974-05:00John, regardless, if you want to bring down the ov...John, regardless, if you want to bring down the overall costs of US health, a base single-payer system is the only way to go. But if you would like to provide some 'evidence' that multi-payer systems can be cost efficient, please do. -Erik<br /><br />To make this post complete, you should compare air ambulance costs in the USA with other rich OECD countries. If I can make three guestimates: the other rich OECD countries spend far less per capita on air ambulance transport and health insurance or the government picks up most of or all of the tab. Lawyers do not dine out like they do in the USA. Erik Poolehttps://www.blogger.com/profile/02442592238782846163noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-18594742081611249832018-06-23T23:40:11.682-05:002018-06-23T23:40:11.682-05:00There is "market competition" at the pre...There is "market competition" at the present time, despite the high cost of entry and the high operating costs. More competition (i.e., new entries) won't improve the situation, but will serve to exacerbate it. Consolidation and 'roll-up' (rationalization) is the name of the game at this stage--just the opposite of your prescription. The large players are looking to Congress to increase the amounts Medicare and Medicaid pay for the air ambulance services, thereby lowering their losses on those service segments. Implicit in higher Medicare/Medicaid payments for service, is a reduction in billing to insurers and employers--Medicare/Medicaid pay more so that you pay less. The alternative to this is the New Jersey approach. But Americans don't like to pay surcharges or taxes into a common pool for services that they might never need, and so resist that approach even though it has proven effective at preventing "price gouging" (loss recovery).Old Eagle Eyehttps://www.blogger.com/profile/05270080708077871311noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-44456704046647842562018-06-20T20:17:31.993-05:002018-06-20T20:17:31.993-05:00It seems that, practically speaking, when your ans...It seems that, practically speaking, when your answer is, "why not just raise taxes to pay for it," you've lost. Price controls would be yet another distortion, but I don't see why, given the above, they are not a reasonable attempt. Your supply side solution is persuasive from a descriptive perspective, but I mean in the sense of looking for a practicable solution.Jackson Monroehttps://www.blogger.com/profile/07852120575954185185noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-507713267727418262018-06-19T13:01:26.895-05:002018-06-19T13:01:26.895-05:00The problem is not a high fixed cost of providing ...The problem is not a high fixed cost of providing this particular service. Its that the "prices" are not tied to costs because of the market restrictions. Market competition would force prices to reflect costs as opposed to some opaque calculation of a consumer's "ability to pay". As a result, the competitive system incentivizes companies to find new ways to lower their costs rather than to search for new ways to price gauge.Davidnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-61915945225439563552018-06-18T14:35:01.693-05:002018-06-18T14:35:01.693-05:00There are standby charges that the air ambulance s...There are standby charges that the air ambulance service operator must cover irrespective of whether the aircraft flies or not. The more flights the aircraft makes the lower the per flight cost and hence the lower the marked-up cost charged to a paying patient or his insurer/employer, ceteris paribus. <br /><br />The notion that more aircraft and more air ambulance service providers will lead to lower charges per flight is probably mistaken given the relatively high investment in aircraft and the relatively high labor costs for manning the service on an "on-demand" around-the-clock basis. <br /><br />Unlike a physical commodity which can be stored with little depreciation in quantity or quality for later use if properly warehoused, personal services cannot be warehoused one day and then withdrawn from the warehouse in two or three days time or in a month's time when needed. <br /><br />The alternative to for-profit independent air ambulance services is to have the state provide the service and impose a tax or a surcharge on the state’s residents to cover the cost of service that cannot be recovered from private insurance or Medicaid/Medicare insurance. <br /><br />Provision of air ambulance service by the state can be had by contracting with private parties on a negotiated basis. Contracts can be awarded via competitive bids for specific geographic areas in the state and for specific time periods (e.g., 1-2 years), etc. Private air ambulance services need not be excluded from the state. The state provided service would likely drive the private operator out of the local market unless the private operator was capable of providing the service at a lower total cost. “Competition” in this fashion would address both requirements identified in your blog post.<br /><br />An overview of the air ambulance industry can be found in a September 2010 GAO report to requesting congressmen by navigating to: https://www.gao.gov/assets/320/310527.pdf <br />Old Eagle Eyehttps://www.blogger.com/profile/05270080708077871311noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-35364445969553711432018-06-18T12:50:59.790-05:002018-06-18T12:50:59.790-05:00Hi John,
Thanks for the post! Two comments/quest...Hi John, <br /><br />Thanks for the post! Two comments/questions: <br /><br />1) I recently moved to the Bay Area and housing is obviously a huge problem here. One policy I've heard bounced around requires new buildings to include "affordable housing" units that have to be rented at a lower rate. I'm wondering if a similar analysis applies:<br />- The policy reduces supply by making it less profitable to construct a building<br />- The reduced supply drives up the amount paid by "market price" renters, in effect cross-subsidizing renters in the affordable housing units<br />- To clear the market for the affordable housing units, they will either be allocated via a long waiting list/connections, or they will be of very low quality (either very small or run down) <br />- A smarter policy would be to increase housing subsidies for low-income people, paid for out of taxes<br /><br />2) I'm thinking about joining a seastead sometime in the future (https://www.blue-frontiers.com/en/) and am wondering how you would think about design an institution that prevents these types of issues from arising. I think a much more precise delineation of the policy tools available to government would be helpful, but I wonder if that would be too inflexible to sustain over a long horizon. Davidnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-62514899127569117182018-06-14T21:39:07.030-05:002018-06-14T21:39:07.030-05:00What? You mean consumer surplus is a bad thing? Ha...What? You mean consumer surplus is a bad thing? Ha. I jest. Welfare economics smashes into the unenviable position of being in a Paretto efficiency, even if reality says there's a Paretto Improvement to be made [I know this sounds like a stretch a bit!]. (Look at taxes and people who complain about them: "Why should I have to give my hard earned money to someone who doesn't even work?" We've all heard this from someone. Maximize someone's utility at the expense of another. Insert frowny face.)<br /><br />Oh, how micro can tell a story. Ha.<br /><br />Will a helicopter come and take you to the ER if you're in a helicopter crash? *scratches head* Mykel G. Larsonhttps://www.blogger.com/profile/17128735421035292909noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-4833064376161490642018-06-13T20:49:52.549-05:002018-06-13T20:49:52.549-05:00interesting, so a reduction in a supply of hospita...interesting, so a reduction in a supply of hospital services increases the supply of helicopters, but not enough to reach an efficient supply of helicopter services...I think that corroborates JC's exasperation with the proposal of restricting the supply of helicopter services...LALhttps://www.blogger.com/profile/08196675112184615614noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-75165278142695065752018-06-13T20:01:43.346-05:002018-06-13T20:01:43.346-05:00I am with you to the last step. If we force carri...I am with you to the last step. If we force carriers to accept everyone but otherwise allow competition, we should get expected price = marginal cost:<br /><br />pr(medicaid)*Pfixed + pr(private)*Pmarket = MC<br /><br />This is the same as taxing the private users and subsidizing the medicaid users. The problem is therefore the distortions from a very narrow tax base, not the lack of competition per se. Right?Dave Kellyhttps://www.blogger.com/profile/12063918315549507093noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-25057301455395215932018-06-13T11:53:07.838-05:002018-06-13T11:53:07.838-05:00There are also a tremendous number of cross-subsid...There are also a tremendous number of cross-subsidies buried in the tax code in the form of numerous exemptions and deductions. Personally, I would prefer that this be made completely transparent by removing the subsidies from the tax code (by making all income taxable and allowing deductions directly related to producing income).<br /><br />Then you could file a separate form to get your subsidies. For example, instead of receiving tax-exempt interest on muni bonds, the government would cut you a check (or deposit money into your bank account) to subsidize you for the taxes that you paid on your muni bond income. In this way, the subsidies would be explicit and be a part of government spending instead of an offset to revenue.Mark Cancellierihttps://www.blogger.com/profile/17970893548527505809noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-38952188321176211882018-06-13T08:55:09.792-05:002018-06-13T08:55:09.792-05:00I can imagine several interesting explanations, bu...I can imagine several interesting explanations, but the correct answer turns out to be boring. Per the Air Methods historic 10-Ks, hospital consolidation (which causes a reduction in services provided by local hospitals, which in turn requires more flights into regional hospitals) is the primary driver.<br /><br />Oh and also increased Medicaid doesn't hurt, though is a less important factor. While Medicaid does not pay the full cost of a flight, getting something back is far better than nothing. Since flight providers do not screen passengers for ability to pay, and most of those who benefit from Medicaid expansion would have otherwise paid nothing, the expansion is very helpful.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-35164492081044720402018-06-13T02:51:09.721-05:002018-06-13T02:51:09.721-05:00Could this be a case where the need is there but t...Could this be a case where the need is there but the economics just don't work out without a little help? <br />I can hear all the arguments now - "we didn't have air ambulances 100 years ago and we got along fine" etc. But who can argue that they're a huge contributor to the quality of life in this country? I agree with you that this might be something that's worth paying taxes for, and that taxation would be more efficient and less intrusive than regulation, subsidies, and disparities in price. Anonymoushttps://www.blogger.com/profile/17773286453400858666noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-51303050642000963182018-06-13T02:46:17.414-05:002018-06-13T02:46:17.414-05:00I agree that cross-subsidizing is common in health...I agree that cross-subsidizing is common in healthcare and it is better to bring this to the surface. A few comments are<br />1. It is very common for any medical service providing emergent medical care to adjust the bill based on ability to pay. If you cannot decline service based on inability to pay, the initial bill is negotiated afterwards. The culture, if not reality, can be compared to "each according to his ability, each according to his need". This does not apply to non-emergent medical care.<br />2. I am interested in the amount charged to self paying patients. This is often even higher than the amount charged to private insurance and I doubt it reflects the average cost of a helicopter ride of $10,000. For a functional market to develop I would like to see a universal price charged to self pay, private insurance and Medicare/Medicaid. Part of the bill not covered by private insurance or Medicare/Medicaid can be charged to the patient. A larger group of self paying patients (with catastrophic insurance if desired) would promote market efficiency. For poor and/or elderly patient who cannot pay their part there can be separate assistance programs or more transparent subsidies. However different prices for the same service causes huge distortions in the market. MKhttps://www.blogger.com/profile/01205503834016910837noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-12832607562569143872018-06-12T23:36:49.311-05:002018-06-12T23:36:49.311-05:00Well that is a problem for economies of scale.
...Well that is a problem for economies of scale. <br /><br />The plan was to ship the chronically ill to specialists in LA. We are building massive hospital complexes in LA to gain scale. But if you charge 45k for the plane ticket then we have no deal.Matt Younghttps://www.blogger.com/profile/08404998406161097199noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-14365350595508844312018-06-12T20:45:09.023-05:002018-06-12T20:45:09.023-05:00i may be being a lazy thinker, but i dont understa...i may be being a lazy thinker, but i dont understand why there are more helicopters now?LALhttps://www.blogger.com/profile/08196675112184615614noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-42617286409712937132018-06-12T15:26:01.485-05:002018-06-12T15:26:01.485-05:00Though not the the intended thrust of your (excell...Though not the the intended thrust of your (excellent) piece, the huge surprise here for me was that medical helicopters are privately owned in the first place!<br /><br />While I'm generally a "privatize it" sort of guy, I accept there exist a (limited) number of tasks best handled by the state. And I'd have thought medical helicopters would be case in point. The task being performed is inherently dangerous, prohibitively expensive, sorta uncommon (~315K flights per year, if I understand the quotes correctly), and yet something that a majority of society wants to be available when needed.<br /><br />Though I guess the another possible slant is that if medical helicopters can be effectively privatized with the only downside being randomized injustice of a strictly monetary nature, then I guess pretty much anything can be privatized effectively. Bankrupting that unlucky family from the article is certainly terrible, but in the grand scheme of things a rather small price to pay for our (apparently) expansive fleet of medical helicopters.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-31198747462508261832018-06-12T15:11:11.697-05:002018-06-12T15:11:11.697-05:00Awesome post John, as usual. I feel like you'...Awesome post John, as usual. I feel like you're the only one talking about cross subsidies in healthcare, and it seems like such a huge part of the problem. Mike Nigrohttps://www.blogger.com/profile/02368658239396400715noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-36980588992603894542018-06-12T14:15:00.073-05:002018-06-12T14:15:00.073-05:00OK, Dr. Cochrane, you're right. However, as Sa...OK, Dr. Cochrane, you're right. However, as Satchel Paige is supposed to have remarked, "There are some people that if they don't know, you can't tell them."<br /><br />Of course the answer to runaway costs in higher education and health care is supply expansion/competition. (Not to mention price transparency in health care.) The ignorant populace and the corrupt politicians who serve them don't know and/or don't care. Politicians pander to collect votes instead of making the difficult decisions leaders must make and WE let them get away with it. Maybe there's nothing WE can do, anyway.rulesoflogichttps://disaffectedmusings.comnoreply@blogger.com