2nd attempt to debate the merits of health insurance
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09-11-2013, 12:38 PM
2nd attempt to debate the merits of health insurance
I started another thread explaining why it makes no sense to use a managed risk product (insurance) to pay for no-risk items (scheduled visits). But I discussed it in abstract terms and presented lots of concepts and let myself get “all over the place” (thank you Cathym112 for pointing that out), and there was an unfortunate typo in the header which I couldn't fix that kept derailing the debate (thank you WeAreTheCosmos for never letting me forget it). So, this time, instead of an abstract concept, I'm going to present a very simple scenario that should be easy, even for liberals, to get their head around, and I will try to constrain my scatterbrain to this one scenario. And I'll ask any liberals who want to debate me on it to answer 3 very simple questions that require no more than 3rd grade math:

Imagine that there's only 1 medical expense: aspirin. And the demand is constant: everybody needs to take 1 pill a day. And we have a nation of 1 million people.

Now, we know how things should ideally work in a free market where the end consumer makes the purchase himself: drug companies will want to charge as much as they can for aspirin, but the intense competition for customers will force the drug companies to offer the best product at the best price they can.

But, let's imagine that instead we pass a law that everybody needs to buy health insurance, and the insurance company will buy the aspirin for you. And, the law states that the insurance companies must maintain at least an 80/20 payout ratio, meaning for every $80 they spend on aspirin, they are allowed to charge the people no more than $100, and keep $20 for themselves (which is what the US law does state btw).

And let's assume that with the current supply and demand, aspirin costs $80/year, therefore everybody pays the insurance company $100/year, and the insurance companies make $20/year profit on each customer.

Now imagine you are the CEO of one of the major insurance companies, with 100,000 customers. Today you have meetings with two different aspirin manufacturers.

The first one tells you about his new invention aspirin 2.0, where people only need to take 1 per week, and the manufacturing costs are much lower, so the cost of 1 year's supply of aspirin will drop from $80/person to $8/person.

Question #1: If this product makes it to market and some insurance companies start offering it, forcing you to follow suit, what will happen to your profit? Right now you've got 100,000 customers x $20/year profit per customer = $2 million in profit. So if aspirin 2.0 comes out, and the cost goes down to $8/year, so, with the legally mandated 80/20 ratio, your profit goes down to $2/year, what will be your total profit? (hint 100,000 x $2).

Now the second aspirin manufacturer comes in and tells you how he's taking a different approach. He drafted a bill which changes the patent system from a “first to invent” to a “first to file”, which means that even though aspirin was already invented, once the law passes, whoever is first to file in the patent office gets a patent and will be the sole manufacturer of aspirin. And this guy explains that he has the patent application already prepared, in the hands of an attorney sitting on the front steps of the patent office, ready to file the very instant the law passes. And he explains that once he gets the patent, he will force all other aspirin makers out of the market, and will raise the price of aspirin from $80/year to $800/year. So he's asking for you to support various Congressmen's super-pac committees to lobby and get the law passed.

Question #2: If this second guy gets his way, what will happen to your profit? (hint 100,000 x $200)

Now I realize that it's not in your interest to pay more for a product than what the other insurance companies are paying, lest they undercut you. But, assuming we're talking about raising or lowering the overall costs which every insurance company must pay...

Question #3: Given that everybody must buy insurance in this scenario, is it in the best interest of you and the other insurance companies to see the fixed costs which every insurance company must pay go up or go down?

Now, please, don't get your panties in a bunch. I am NOT saying that in the real world it's this simple and it all boils down to this one issue. In fact, it's the exact opposite. This is Austrian economics 101, and it's based on the very notion that modern economic systems are so complex that it's often impossible to reach definitive conclusions even when you have empirical data because there are so many variables and moving parts making it impossible to accurately separate causation and correlation. In fact, we classic liberals accept that when you look at the mountains of empirical data, everybody will cherry-pick the data and see only what supports their pre-conceived ideas. Those on the left and right can both look at the empirical data comparing health care in the US and Canada, and the left will insist the data proves the problem is the US lacks a single-payer system, and the right will insist the data proves the opposite. Neither side can prove they're right because the empirical data reflects the result of millions of complex interactions, thus it's impossible to say what effect one particular issue has as though it occurs in a vacuum.

Therefore, Austrians take a different approach: the same scientific approach Einstein used to discover the theory of relativity. Einstein never would have gotten there by analyzing empirical data because the testing equipment of his day lacked the precision to isolate the effects of relativity, just like today's technology is similarly unable to isolate the effects of one particular health care change. Thus for Einstein the empirical data always supported the mainstream views which we now know are inaccurate and were holding scientists back. What made Einstein special was he accepted the inherent flaws in empirical data and instead conducted thought experiments, such as his famous moving clock. While his simplistic scenarios were not representative of the complexities in the real world, they did allow him to isolate axioms, or nuggets of truth, which were the building blocks of a more complete understanding of the complex universe. This is precisely how Austrian economics works.

So please don't do the old Keynesian trick of ignoring the Austrian axioms, no matter how logical and irrefutable, and insisting that simple axioms can never be used to shed light on complex systems. REAL scientists have proven that's not the case. So let's debate just the axiom that I laid out above, namely that when you take a product that is designed to manage risk (insurance) and use it to purchases no-risk items (like routine care), there is an inherent conflict of interests because what benefits the insurance company is universally higher prices, whereas what benefits the patient is the opposite.
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09-11-2013, 01:17 PM (This post was last modified: 10-11-2013 12:16 AM by Bucky Ball.)
RE: 2nd attempt to debate the merits of health insurance
You model is simplistic to the max, and irrelevant.
Everyone taking ASA is in no way a model that can be generalized to both preventive, and non-preventive care which can ONLY be calculated as a total, by use of actuarial tables.

http://kff.org/uninsured/fact-sheet/key-...opulation/
http://www.reuters.com/article/2013/01/2...5M20130129
http://www.nytimes.com/2012/05/22/health....html?_r=0

As long as anyone has the right to walk into any ER, and expect, (with an enforced liability), to receive ANY amount of catastrophic care, which everyone in this country expects and demands, (the MAJOR cause of bankruptcy in the US is the walking away from, after having received them, unpaid medical care / bills), which is NEVER going to change, legally, the only remaining question is how the tax system, (or whatever it's called), will be set up to pay for those expectations. The expectation (right to access care for everyone), is never going to change, and only increase, with technological advances.

Insufferable know-it-all.Einstein
Those who were seen dancing were thought to be insane by those who could not hear the music - Friedrich Nietzsche
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09-11-2013, 04:23 PM
RE: 2nd attempt to debate the merits of health insurance
(09-11-2013 01:17 PM)Bucky Ball Wrote:  You model is simplistic to the max, and irrelevant. Everyone taking ASA is in no way a model that can be generalized to both preventive, and non-preventive care which can ONLY be calculated as a total, by use of actuarial tables. As long as anyone has the right to walk into any ER...

No, no, no. I don't want this thread to go down the same Keynesian rabbit hole as the other one. It's a classic Keynesian trick. Whenever an Austrian presents an axiom that is so airtight, logical, coherent and simple that it's completely irrefutable, the Keynesian will generally (1) insist that simple axioms cannot possibly be used to understand complex system, (2) throw up a strawman argument and attack it viciously, and then (3) change the subject.

You did all 3:

1) You don't understand what an axiom is. An axiom is a tool, a building block, that may or may not help explain a complex situation. It is not in itself a solution. 1+2=3 is an axiom, namely a simple statement that is uncontroversial and must always be true. Does this explain a complex subject like quantum mechanics? Of course not. But, seeing how it is an axiom, we know it MUST always be true, and if you have created a 100 page long formula to explain the energy released in a nuclear explosion, and at one place in the formula you've built in an assumption that 1+2=4, well guess what. That simple, humble axiom can be used to reveal a flaw in your thinking. The same thing with economics. If you've built a huge, sophisticated complex model, but at one point it uses an assumption that 1+2=4, then there's a problem with your model.

I have presented a very simple, basic axiom: when a middle-man is selling you a product and he gets a fixed markup, the middle-man makes more money when the product is more expensive. That is so obvious, basic and simple. Yet, when analyzing a complex system, you guys are overlooking that really obvious point. For example, nobody is disputing that an insurance company wants to see you get preventative checkups since that minimizes their risk, and that everybody should get them. The question is how to implement it. You have two possibilities: 1) everybody is required to pay an insurance company which in turn pays for the preventative checkup, or 2) the insurance company provides a credit which the insured can apply to his premium if he gets a qualifying checkup. Both approaches reach the same goal. But, with approach #1, the insurance company has an invested interest in seeing the cost of routine checkups rise across the board, since that increases their profit margin, whereas with approach #2, the same goal is accomplished without introducing a perverse incentive. However, you'll never see that if you don't start with a simple axiom like I presented.

Bottom line: if Einstein was able to get his head around a theory as complex as relativity by starting with simplistic axioms, such as a thought experiment about somebody watching a moving clock, then clearly axioms can be useful tools for understanding complex systems. In fact, scientists, like mathematicians and physicists, use axioms every day. Austrian economists are simply applying this same scientific method to economics.

2) Telling me that this axiom cannot be used as model to generalize preventative/non-preventative, etc., is a strawman. I never said it was. I never said that my example was anything but simplistic. I never said it explains the health care problem. I never said it takes into account other factors. I simply said that it is a basic, factually accurate statement, and that even when analyzing a complex system, this basic axiom will always be true.

3) The issue of everyone walking into the ER and being able to get treatment is entirely separate and unrelated. In fact, if you read my posts, I already pointed it out several times, and you're just echoing what I already said on a different topic. But this is changing the subject. I'm not talking about this.

So, let's get back on topic. Do you dispute the axiom in my OP? Or, do you accept that when an insurance company acts as a middle-man to buy a product that everybody needs (like routine checkups) and gets a fixed markup, that the insurance company makes more money if the cost of the product rises across the board?
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09-11-2013, 06:48 PM
RE: 2nd attempt to debate the merits of health insurance
(09-11-2013 04:23 PM)frankksj Wrote:  No, no, no. I don't want this thread to go down the same Keynesian rabbit hole as the other one.

Just a note of encouragement.

I've read a little on Austrian economics and am intrigued by it. I'm still looking for intelligent mainstream (Keynesian and neoclassical) responses to it but haven't found anything noteworthy. I appreciate that you are arguing an unconventional position and are striving for intellectual rigor. That is refreshing to see on this forum. Please continue.
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09-11-2013, 07:07 PM
RE: 2nd attempt to debate the merits of health insurance
moot point, as long as people think that consumption is associated with freedom and as long as corporations are allowed to push known toxic and addicting substances (called food these days) on people then any discussion of health is a moot point.
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09-11-2013, 08:04 PM
RE: 2nd attempt to debate the merits of health insurance
Quote: Whenever an Austrian presents an axiom that is so airtight, logical, coherent and simple that it's completely irrefutable,

Been there....done that.

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09-11-2013, 10:20 PM
RE: 2nd attempt to debate the merits of health insurance
Again, the idea of needing an insurance plan for a first responer (aka EMT) is absurd. Do you need insurance to dial 911 for the cops or fire department? Do you get a bill from the police when they arrest a home invader? Nope.

All this is, is Capitalism at it's worst, trying to make money off the suffering and pain of others. Capitalism works, for the most part, but this is definitely one aspect I'd love to see changed to Socialism/Communism...So that everyone can recieve equal care regardless of average income, their insurance plan, or pre-existing conditions.

How will we (as a country) pay for free healthcare? Tax the churches (3.1 billion dollars in FY 2013 alone), execute those on death row (228k per prisoner, per year), stop putting petty criminals in prison (228k per prisoner per year) and instead do a rehab system for petty offenses (33k per patient, per year).

^ Will never happen, but it would help immensely.

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10-11-2013, 12:15 AM (This post was last modified: 10-11-2013 01:11 AM by Bucky Ball.)
RE: 2nd attempt to debate the merits of health insurance
(09-11-2013 04:23 PM)frankksj Wrote:  
(09-11-2013 01:17 PM)Bucky Ball Wrote:  You model is simplistic to the max, and irrelevant. Everyone taking ASA is in no way a model that can be generalized to both preventive, and non-preventive care which can ONLY be calculated as a total, by use of actuarial tables. As long as anyone has the right to walk into any ER...

No, no, no. I don't want this thread to go down the same Keynesian rabbit hole as the other one. It's a classic Keynesian trick. Whenever an Austrian presents an axiom that is so airtight, logical, coherent and simple that it's completely irrefutable, the Keynesian will generally (1) insist that simple axioms cannot possibly be used to understand complex system, (2) throw up a strawman argument and attack it viciously, and then (3) change the subject.

You did all 3:

1) You don't understand what an axiom is. An axiom is a tool, a building block, that may or may not help explain a complex situation. It is not in itself a solution. 1+2=3 is an axiom, namely a simple statement that is uncontroversial and must always be true. Does this explain a complex subject like quantum mechanics? Of course not. But, seeing how it is an axiom, we know it MUST always be true, and if you have created a 100 page long formula to explain the energy released in a nuclear explosion, and at one place in the formula you've built in an assumption that 1+2=4, well guess what. That simple, humble axiom can be used to reveal a flaw in your thinking. The same thing with economics. If you've built a huge, sophisticated complex model, but at one point it uses an assumption that 1+2=4, then there's a problem with your model.

I have presented a very simple, basic axiom: when a middle-man is selling you a product and he gets a fixed markup, the middle-man makes more money when the product is more expensive. That is so obvious, basic and simple. Yet, when analyzing a complex system, you guys are overlooking that really obvious point. For example, nobody is disputing that an insurance company wants to see you get preventative checkups since that minimizes their risk, and that everybody should get them. The question is how to implement it. You have two possibilities: 1) everybody is required to pay an insurance company which in turn pays for the preventative checkup, or 2) the insurance company provides a credit which the insured can apply to his premium if he gets a qualifying checkup. Both approaches reach the same goal. But, with approach #1, the insurance company has an invested interest in seeing the cost of routine checkups rise across the board, since that increases their profit margin, whereas with approach #2, the same goal is accomplished without introducing a perverse incentive. However, you'll never see that if you don't start with a simple axiom like I presented.

Bottom line: if Einstein was able to get his head around a theory as complex as relativity by starting with simplistic axioms, such as a thought experiment about somebody watching a moving clock, then clearly axioms can be useful tools for understanding complex systems. In fact, scientists, like mathematicians and physicists, use axioms every day. Austrian economists are simply applying this same scientific method to economics.

2) Telling me that this axiom cannot be used as model to generalize preventative/non-preventative, etc., is a strawman. I never said it was. I never said that my example was anything but simplistic. I never said it explains the health care problem. I never said it takes into account other factors. I simply said that it is a basic, factually accurate statement, and that even when analyzing a complex system, this basic axiom will always be true.

3) The issue of everyone walking into the ER and being able to get treatment is entirely separate and unrelated. In fact, if you read my posts, I already pointed it out several times, and you're just echoing what I already said on a different topic. But this is changing the subject. I'm not talking about this.

So, let's get back on topic. Do you dispute the axiom in my OP? Or, do you accept that when an insurance company acts as a middle-man to buy a product that everybody needs (like routine checkups) and gets a fixed markup, that the insurance company makes more money if the cost of the product rises across the board?

You are starting with an irrelevant false premise. YOU are setting up your "axiom" INSIDE THE RABBIT HOLE. Have fun fapping down there. When you're all done, it will have ZERO, (NONE), relevance to reality. You have gone through he looking glass, and demand everyone follow. Have fun, playing your meaningless little game. Saying you want to debate "health insurance" and then actually demand SOMETHING ELSE gets discussed, and limit severely the variables you will allow discussed, is simply childish. What will it prove ? Nothing. What you want to do is engineer an outcome, not have a discussion. How is that honest ? If you actually this "Austrian" model has ANY relevance, it's no wonder your views are SO weird. No mainstream economist in 2013 buys the Austrian junk. You should have been a fundamentalist preacher.

Insufferable know-it-all.Einstein
Those who were seen dancing were thought to be insane by those who could not hear the music - Friedrich Nietzsche
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10-11-2013, 10:36 AM (This post was last modified: 10-11-2013 02:37 PM by frankksj.)
RE: 2nd attempt to debate the merits of health insurance
(10-11-2013 12:15 AM)Bucky Ball Wrote:  What will it prove ? Nothing.

Then why can't you just admit that it's true? If it proves nothing, then what is the harm in admitting that the axiom I presented is OBVIOUSLY true and always will be, just like 1+2=3 is OBVIOUSLY true and always will be?

See, if I presented a false axiom, like 1+2=4, you would be quick to point out my stupidity for such a glaring mistake.

If my axiom was true, but irrelevant and pointless, like 1+2=3, then you would acknowledge it was true, but you'd tell that you already knew that and in your planning you've never once NOT taken into account that 1+2=3.

You won't state the axiom is false. So it must be obviously true. But you won't admit that it's true. Therefore it must actually be relevant; you must have somewhere in your planning failed to take into account the obvious and irrefutable fact that if an insurance company pays for a routine planned expense, and has a fixed markup like the law demands, the insurance company makes more money when the cost goes up, and that when it goes up across the board for every insurance company, there is no pressure of free market competition to drive it back down.

If this axiom is false, say so. If it's true and you've always known it, why can't you bring yourself to admit that it's true?

(10-11-2013 12:15 AM)Bucky Ball Wrote:  What you want to do is engineer an outcome, not have a discussion.

It's the opposite. When we're having a discussion about a complex system with trillions of moving variables, it's impossible to find a place to start because you cannot pick any one issue and debate it since all the issues are intertwined. Therefore, both sides just end up stating opinions. The whole point of axioms is to find a way to break down a complex system into small, manageable chunks. IF you agreed that my axiom is true, that doesn't solve the problem of outrageous medical costs in the US, since my axiom touches on only one tiny aspect of it. BUT, it would be a place to start, and a way to start making positive changes because we could, for example, debate if it's an improvement to NOT have the insurance company pay for a routine checkup that everybody needs anyway and which the insurance company is only marking up, but rather to give you a credit if you get the checkup on your own. And, if we solve that perverse incentive, maybe we shave, say, $50/year off the costs. Then, take on another axiom that addresses other irrational elements of the health care market, and, find a solution to shave another $50/year off. And keep doing that. At least that would be progress, as opposed to just throwing insults.

(10-11-2013 12:15 AM)Bucky Ball Wrote:  No mainstream economist in 2013 buys the Austrian junk.

True. BUT, the fact is that scientists like mathematicians and physicists use the Austrian system in everything they do, and the modern life we enjoy today would never have been possible without this system. Your iPhone is only possible because of a greater understanding of physics and quantum mechanics. And, had we stuck to the more obvious system of looking only at empirical data, like Keynesians do, we never would have realized that we were looking at it all wrong. It took axioms to solve. This is why I say that mainstream Keynesian economics is faith based, rather than science based. Religions agree with Keynesians that axioms must be avoided at all costs.

The second fact to consider is that the people who can predict how a complex system will work clearly understand the system better than those who cannot. Google 'austrian vs. keynesian' predictions, and you'll find tons of links that compare the predictions side by side, like this one: Youtube

Back in the 1970's when the US dropped the gold standard Austrians predicted high inflation and rising inequality with a continuous erosion of the poor middle class. Keyensians insisted unleashing the Fed would give the government more room to operate so that they could help the poor. Here's the chart showing which side got it right: http://www.leftbusinessobserver.com/GiniLong2004.jpg

Austrians predicted the dot-com crash of 2001, Keynesians said it wouldn't happen. Austrians predicted the Fed was building up a housing bubble. Keynesians said no. Austrians predicted it would lead to a housing crash, Keynesians said there was no bubble. Austrians predicted in 2005 that the banks were so over-leveraged on mortgage backed securities that the crash would lead to a banking crisis. Keynesians, including the chairman of the Fed which overseas all banks, insisted the banking system was safe and sound, even right before it came crashing down.

Now, Austrians are predicting the US dollar will lose it's place as the world reserve currency because of all the excessive money printing and the difficulty the US has getting the new wars it needs to stop oil producers from selling in non-US dollars (ie Iran), and that this will lead to a currency crisis and a currency war, and eventually a return to high inflation when the people wake up and stop accepting these worthless pieces of paper the Fed is printing. And Austrians know this will not only hurt the economy, but disproportionately affect the poor and middle-class since they both get paid in and save in currency-denominated instruments, while the rich do not. Keynesians, of course, say it's all lunacy. However, when this last prediction comes true, just like all the others have, Keynesians will as always just stare in shock and wonder at what happened, but still insist they were right all along.

So, can we get back to the original topic and not stray all over the place? Will you just say if the axiom in the OP is true or false? You don't need to explain why it's irrelevant until we at least agree if it's true or false. If it's false, end of discussion. If it's true, then we can debate the relevance. But if you won't respond with a 'true' or a 'false' we're just going around in circles.
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