What Kills American Healthcare

Naked Economics: Undressing the Dismal Science by Charles Wheelan is an absolute page turner of a book, amazing since it’s a book about economics. But before even finishing the entire book, I needed to stop and write down a couple thoughts.

(A) It should be required reading for everyone but especially those who feel the need to express opinions about politics or public policy. The book dives into the secondary impact of hot topic policy decisions such as free trade, tax rates on various income levels, and brand power.

And (B), the book will provide a better understanding on the macroeconomy which will improve your investment decisions and provide general market understanding. A better understand about macroeconomics creates better invest decisions (ie higher returns) by identifying trends and what the impact of policy decisions will be. This information will help you retire sooner (and seem smarter to your dumb friends).

The book discussed in plain English all of the normal economist hot topics including:

  • The power of markets
  • Why incentives Matter
  • The Government and the Economy
  • Economics of Information
  • Productivity and Human Capital
  • Financial Markets
  • The Power of Organized Interests
  • Keeping Score
  • The Federal Reserve
  • International Economics
  • Trade and Globalization
  • Developmental Economics

One of my favorite pet issues is Free Trade, specifically the complete lack of understanding of the issue by the general populace which is then used by politicians to peddle fear and promise to build trade barriers to “protect” domestic jobs. That idea is complete nonsense. Still, I don’t want to rant on that here. I haven’t even made it that far in the book yet. But you can expect a rant about that topic later.  

In the chapter titled “Economics of Information” the market for insurance is discussed. It details the relationship between each party in the transaction and who has access to what information. Specifically, the healthcare industry is rife with situations involving asymmetrical information. These are transactions where one side has more information than the other. Examples of this would be someone that has a drug or drinking problem or engages in some other kind of highly risky behavior.

An asymmetrical market is different than the strong market theory that is the prevalent theory in the stock market. Theoretically in a strong market, all available information is baked into a stock’s price.

The asymmetry of information in healthcare puts the insurer at a disadvantage when pricing policies. The insurance companies therefore have to charge a higher premium to insure against what they don’t know and to ensure profits.

This should immediately be of a major concern to any American not just because of their physical health but also because of their financial health. Medical bills continue to be the leading cause of bankruptcy in America.

I even have a personal story of my retired mother at age 72 having to pay $60,000 of her own money (not the bill to the insurance provider) in a single year for dental bills. Fortunately in her case it did not cause bankruptcy but it was a significant portion of the savings she spent a lifetime accumulating as a public school teacher.

Mr. Wheelan’s simplifies the entire healthcare market:

Here are the relevant economics: (1) We know who is sick; (2) increasingly we know who will become sick; (3) sick people can be extremely expensive; and (4) private insurance doesn’t work well under these circumstances. That’s all straightforward. The tough part is philosophical/ideological: To what extent do we want to share health care expenses anyway (if at all), and how should we do it? Those were the fundamental questions when Bill Clinton sought to overhaul health care in 1993, and again when the Obama administration took it up in 2009

This passage should seem dated to us since the book was last updated in 2010 but sadly, none of these issues have been resolved. Politicians on the right are still campaigning on promises of overturning Obamacare after they win. Politics, especially at the campaign level are nonsense however, so I’m really not interested in the rhetoric.

Depending on how much research you’ve done into the healthcare issue in the past, Wheelan’s items 1, 3, and 4 will not be new ideas to you. In economics these factors together are what is called adverse selection: if given the choice, only the sick will pay to get insurance. They would wait until they were sick and then run out and purchase some to pay the doctor’s bill.

Insurance doesn’t work if everyone in the insurance pool is sick. If still forced to provide insurance, insurance companies will realize the costs and charge the participants in the pool rates close to what the cost of the treatments cost plus a profit margin. There would be no point in buying such a policy, it would be cheaper just to pay the bills yourself to avoid the processing fees and profit margins the insurance company charges. Insurance only works in a large pool of participants with risk characteristics which are predictable within a range but uncertain enough for each individual participant to not know if they will need it or the insurer to know who exactly will need it.

The pooling issue is the basis of Obama’s “personal mandate”. This feature is required for any form of insurance to work. Although controversial and interesting, the personal mandate still isn’t where I want to discuss because Wheeler’s most interesting thoughts revolve around #2 of his four point summary (although I feel the mandate is MUST to make it work).

Wheeler’s hypothesizes what will ultimately doom “private” insurance is not out of control fees or political interests (which would have been my answer) but instead it will be the scientific developments in the field of genome mapping. According to genome.gov, gene testing and screening can already:

  • Diagnose disease
  • Identify gene changes that are responsible for an already diagnosed disease
  • Determine the severity of a disease
  • Guide doctors in deciding on the best medicine or treatment to use for certain individuals
  • Identify gene changes that may increase the risk to develop a disease
  • Identify gene changes that could be passed on to children
  • Screen newborn babies for certain treatable conditions

The information gene screening will be able to provide is set to expand exponentially over the next few years. It will have revolutionary changes for both how diseases are treated and for the insurance industry. Insurance companies are going to have a financial interest in knowing who is going to be sick and when, gene sequencing will tell them.

The writing is on the wall and some people are already reading it. In 2008 the United States federal government adopted the Genetic Information Nondiscrimination Act (GINA). The goal of GINA is to prohibit employers from using the results of genetic testing for hiring or compensation purposes and health insurance companies from results to make underwriting (rate) decisions.

So you do you think it will work? If so, I have a bridge in New York and some slightly damp investment property in Florida to sell you. Insurance companies have such a strong incentive to use this information it’s doubtful regulation will prevent them from doing so. In the end, they will either find a way to get the information directly or a way to tease it out of other data sets and exclude candidates based upon known risks. When this happen, you’ll see exactly what Wheelan predicts, a complete collapse of the current private insurance system and a need to shift to a universal single provider system.

What concerns me is we’re not discussing this very known risk now. It needs to be a public conversation and move towards a system that works in this brave new world? It’s frustrating the government is going to wait until enough people fall through the cracks before acknowledging the problem. In the time it will take for public opinion to reach its crescendo of frustration could take years and in the meantime hundreds if not thousands of citizens could either die or go bankrupt from medical bills.

Whatever you believe, read Naked Economics: Undressing the Dismal Science by Charles Wheelan. After reading it you’ll have a better understanding of the world around you and be better able to explain your opinions on the geopolitical matters that affect your money.

What do you think? Are you worried about health care? Do you think our current year is all that it’s cracked up to be?

Where are the CrossFit Progressions?!?!

In the last fitness post, one of CrossFit’s weaknesses was reviewed: the lack of periodization in CrossFit. But the sport is also wanting in another area: progressions. What I mean by progressions is providing a roadmap to gain new skills.

Usually when a CrossFitter lacks a certain skill, such as muscle ups, the coach (who I believe are mostly well intended and awesome) give the athlete a few drills to work on. These can be as simple as doing sets of ring rows to acquire the requisite strength to start doing pull-ups or doing knee push-ups on the way to doing full push-ups. Some coaches are better than others and most are better equipped to provide progressions for the simpler skills since these are often what they see for beginner athletes and therefore encounter the situation over and over again as new members are constantly joining.

The athlete is then left to determine how much of the drill to do. Either the drill will work or the athlete is stuck. Sometimes, the frustrated athlete will decide to work on a different skill(s) getting stronger overall in the process and the original skill being focused on will magically happen. Or it won’t.

What the sport needs is a more formal progression roadmap. I have yet to see a CrossFit coach put together a multi-week program to get the athlete to a point they can do the skill. Finding a guide on how long to do each progression or a yardstick to measure if they have acquired enough strength to move on to the next step of the progression does not exist.

For athletes without a gymnastic background, which includes about 99.5% of all guys and 80% of all women**, the best single book to read is Overcoming Gravity: A Systematic Approach to Gymnastics and Bodyweight Strength.

So far, it’s the only book I have read that actually provides a progression for the complex CrossFit movements revolving around gymnastics. The book explains each gymnastic movement in literally graphic detail including diagrams and pictures for each, explaining the strength requirements to perform. It even provides a letter grade ranking the difficulty of the movement. Each movement is explained in enough detail for the book to pass for a college text book, which I’m sure it is if you’re studying exercise philosophy. If you plan to carry this book around, go for the digital version of the book; your back will thank you.

Not that the entire book is over the top with detail, the appendixes provide simplified charts to aid in focusing on weaker movements and provide guidance on moving forward (these start on page 519 of the book). Then they even have a page at the end titled How to Construct A Workout Routine In One Page. Talk about making it easy! I wish a book like this existed for everything I wanted to do in life.

Back to CrossFit though; the lack of a skill roadmap will hurt the sport of CrossFit in the long term as frustrated athletes leave because they are not progressing. Frustrated, they will instead find other more established sports such as running, where many, many books and other guidance material has been published to help get the athlete from a beginner to a veteran without having to figure it all out on their own.

Eventually as CrossFit matures, this will all figure itself out.  More and more people will participate and decide to write about their successes and failures. As they do, it will create the missing road map and form the foundation of sport’s pyramid. Trial and error combined with passionate participants will fill in the lack of initial progression theory in the sport.

Right now the higher level, regional athletes & pros already understand general CrossFit programming will not get them to the next level. They fill in this gap with progression programming provided by sports specific coaches such as gymnastic and swimming coaches. These coaches come from a long history of training progressions for their specific sport and are experiences in passing along these skills.  

Most day-to-day CrossFit athletes don’t have the time, money nor the desire for this. At this level, they blame the local coaching or programming for their lack of progression when what they really need is to educate themselves on the proper progressions for the skills the are lacking. The singles best option for them to do that would be to read Overcoming Gravity: A Systematic Approach to Gymnastics and Bodyweight Strength.

**95% of all statistics are made up on the spot.

 

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Store apps: Lazy Man’s Coupons

I have always written off coupon clipping as an unproductive, overly time consuming habit not worth pursuing due to the time it takes to sift through all the garbage mailers and newspaper ads but recently I’ve reconsidered it. Thanks to technology, store apps have become more useful and with almost no additional work they can generate real savings while simultaneously saving you some time in the store (especially with the Target app).  

This revelation all started with a trip to Kohl’s. All I needed was some new dress socks for work but if you are fortunate enough to not know how Kohl’s works, the store gamifies coupon shopping. It’s my mother in-law’s favorite place to shop because if you go in there properly prepared, you’re often paying 50-70% below the sticker price with all the rack discounts, coupons, mailers, and other deals. But for the lazy and not properly prepared, the discount is limited to discount advertised on the race (which is still often over 20% because, well, that is how Kohl’s markets all their crap). Kolh’s works on the sucker’s marketing theory that everything is on sale, all the time… 

So as I was driving to my local Kohls, my lack of preparation dawned on me. It was too late, I needed these socks. But I had revelation… what about the Kohl’s app? There had to be coupons in it right?!??! Kohl’s coupons everywhere right?!?!? RIGHT?!?

I carefully downloaded it while at, let’s say, a red light.

Opening the app, I selected my local store as my default location and sure enough it had a coupon in the app for an additional 20% after any other discounts. I’m sure my final price was still above what my mother in-law would have paid but I still considered it a win given my lack of preparation.

Given this experience and the fact I really only shop at two stores, I decided to explore the store apps of two places I shop:

Costco

As far as money goes, this is where my family spends a bulk of its grocery budget. Milk, eggs, fruit, and most of our other staples are purchased here so it was the first app I looked at.

The navigation menu allows users to browse Warehouse Coupons, Online Offers, Shop Costco.com, locate a warehouse, access the Photo Center, create a shopping list, use the travel services, access your membership, the pharmacy, the business center, read their Costco Connection newsletter, access the settings, and give feedback.

The first thing I did was locate the closest warehouse and set it my local Costco. The warehouse tool uses your GPS to approximate your current location show it on the map. In my case, I was setting this up at my office so I had to move the map to the area closer to my home and select the Costco there. It was all straightforward and hopefully will only need to be done once.

Then I went into browse coupons to see if there was anything we regularly buy in the coupon section. It seems like there are hundreds of items there so I was in luck. You can then “clip” the coupon to shopping list.

The shopping list function is where I really started to like the app. Currently, I keep separate lists for each store in my all-time favorite app, Evernote, and add items to them as needed but since the Costco app can create lists I’m going to move my ongoing list to that. The clipped coupons are added to the list automatically as “clipped” but then can also be added manually. This is really useful for everyday generic items like milk.  

Now this is where it’s really cool because based on what you add, Costco searches to see if similar items are on sale. On my list I had entered yogurt and Costco had found a yogurt on sale so it added the “savings” button to the right of the item. Clicking on this button displayed the sale item.

In my case, this was not an acceptable yogurt but I can envision cases where this search could generate some additional savings.

Target

The next most frequented store for me is Target. They actually have two apps, the Target app and another app made by Target called Cartwheel.

Cartwheel is the slicker app of the two but it’s basically a digital version of their circular displaying sale items and flashing how much time is left before the sale ends. The entire app is just marketing crap. Additionally, all of the sale items are already brought into the main Target app without having to use this so the Cartwheel app is going to be deleted before this is posted.

Back to the Target app itself. It works in pretty much the same was as the Costco app, first you select your local store and go from there. Coupons or sale items can be found in the cartwheel section of the app and then added to your list.

In the list section, items can be manually added to your list. It has the same great feature as the Costco app of searching for deals on items with the same description as what you have added. In my example, there happened to be a sale on milk.

One huge advantage the Target app has over the Costco app is that it puts the aisle number for every item on the list PLUS the app will re-order your list when you get to the store to generate your most efficient route through the store!! I absolutely love that feature. I can not tell you how many times I’ve wandered through the store looking for some random item like marshmallows that we only purchase a few times a year (for camping). I expect this feature alone will save me 10-15 minutes every time I go to the store!

The bad side of the Target list however is that when an item is removed from the list, it’s gone forever. If you want add it back, you need to re-type in the item. This sucks for commonly purchased items that you would like to store on the list and just un-click when you need to purchase it. The Costco app saves the item for later use.

Neither of these apps will save you a ton of cash but if you only shop in a few stores downloading the apps can make you a more efficient shopper since you’ll have a plan and if coupons do exist you can save a few bucks each time you go. All that for almost no extra work.