Category: Opinion

By: We Are Tulpa

The Good

Why is it whenever critics discuss monopolies they rarely mention Google? You know Google, the company with a market cap of over $500 billion that controls around 80% of the search market, about 30% of the worldwide digital ads market, and provides its Android operating system to almost 90% of all smartphones used by roughly 25% of all websites, including this one! We can’t forget about the behemoth Apple either. They control 10% to 20% of the smartphone market at any given time, and are the most valuable company in the world! And when your Facebook friends unleash a screed against monopolies they ironically fail to realize that their message is made possible by a company that enjoys 42% of visits to social media platforms.

How is it critics continue to ignore these monopolies, preferring to poke at other sores? Truth is, these are the good monopolies. From Amazon to Uber, many of these relatively new tech companies have achieved enormous gains over incumbents due to superior service to customers. Yet when Bloomberg blames monopolies for income inequality, worker exploitation, slow productivity growth and a lack of business dynamism (whatever the hell that means), they conveniently fail to discuss these good monopolies.

Now I’m not saying the tech world is an ideal model for worker-employer relationships: In fact I think many tech companies, like Amazon, are screwing themselves long-term with their burn-out cultures; but these monopolies were elevated to their positions by doing it better than the rest, and that inconvenient truth destroys the “all monopolies are worse than Hitler” narrative often supported by the right and the left.

As a quick note, I’m using the term monopoly to include monopolistic competition and oligopolies in addition to monopolies. Let the commentariat eviscerate any uncharitable pedants who fail to understand this.

The Bad

So why are consumer outcomes so bad in industries like finance, utilities, and healthcare? How is it that consolidation in these industries just seems to make things more painful for consumers, while tech monopolies have reached dominance by making customers happy?

My Libertarian comrades may be inclined to say “it’s the regulatory environment dumbass” and they have a point. A free-market for internet providers would remove many of the regulatory obstacles to deployment. It would also reduce regulatory risk, or the uncertainty of future regulations that could instantly destroy the earning potential of a new billion-dollar internet provider. A recent example of this risk materialized with Net Neutrality, a policy which limits how internet service providers can respond to bandwidth hogs like Netflix. A free-market, or something close to it, results in lower barriers to entry and less regulatory risk, thus encouraging more competitors to enter the marketplace in a direct assault on entrenched bad monopolies. After all, it’s really not that hard to beat Comcast, if you have lots of cash and a fair playing field.

However, while onerous regulations explain how bad monopolies retain their market position while providing terrible service, it doesn’t fully explain why consolidation is occurring in industries like healthcare. To understand that we have to add one more factor to our model of how bad monopolies are born…consumer irrationality.

The Ugly

Our journey to the center of government meddling in healthcare starts with this contemptible creation:

The food pyramid was brought to life in 1992, thanks to the generous assistance of many food industry groups, and in the face of enormous criticism. Despite that, American’s seemed to jump on board with the “screw fats” and “carbs are good” recommendations it pushed: After the new guidelines were released the average calories from fat became significantly lower. Further, the pyramid influenced a wide range of policies and recommendations from meals in public schools, to dietary guidelines for expectant mothers.

Today we know better. Fats are not an evil that should be avoided at all costs, and many experts are questioning whether saturated fats (long considered the worst of the worst) are actually linked to obesity or heart disease. Meanwhile, those glorious carbohydrates that formed the base of the mighty food pyramid have been sidelined in most modern nutrition programs.

Back to the ’90s, after the government’s food innovation, something very interesting and entirely predictable happened. We got fat. Obesity rates begin to increase sharply in the mid to late ’90s. It was a perfect storm really. Nixon’s corn subsidies had reduced the price of corn products including high-fructose corn syrup. Food suppliers seized on this and offered cheap junk food. Then came the food pyramid, which told us massive intakes of carbs are a good thing. So whether you jumped on the cheap junk food bandwagon, the carbo-load bandwagon, or somewhere in between, your new diet was influenced by good ole Uncle Sam.

Of course with rising obesity rates came rising rates of heart disease, stroke, diabetes, and more. Doctors advocated for taking in less fat and sugar to combat the problem. Cholesterol became a key indicator of your risk for many obesity-related diseases and cholesterol-lowering drugs.

But were doctors targeting the wrong cause all this time? Several new studies have found no or negative relationships between cholesterol and heart disease. Plus, we already covered the growing body of evidence that saturated fats aren’t really bad after all. Of course, if true, it means that thousands of lives have been lost in preventable deaths, billions of dollars wasted, and many lives forever transformed because our favored solutions were about as useful as a Libertarian purity test.

This begs the question how much influence did government nutrition guidelines have on health recommendations? How much did government actions contribute to the obesity epidemic? These are hard questions to answer, but they’re even harder when you’re not looking. Take a glance at some of the major websites weighing in on the obesity epidemic and you’ll be lucky to see a reference to corn subsidies. Don’t bother looking for the government’s promotion of terrible diet advice. Apparently, that bit of history has already been forgotten by most.

Of course, this is the perfect opportunity for a Libertarian moment – a shining example that science and government policy should exist independently, not in direct reliance on one another. Don’t get your hopes up. Salon argues that the government’s newest food meddling innovation, My Plate, still over promotes carbs. But the apparent cause is we just didn’t have the right top men. HuffPo answers the gov food failings by pointing the finger at the evil food industry. After all crony capitalism isn’t a problem inherent in governance; the problem lies in capitalist actors using greed against the noble politicians. How can our great politicians resist the influence of these evil capitalists?

This is our first glimpse of consumer irrationality: Reliance on government health guidelines and demanding more government to fix the problem it created in the first place. I don’t fault consumers for buying more corn-based products after subsidies were introduced. That’s perfectly rational behavior. But thinking big papa government has your nutrition covered, seems a bit foolish given it’s track record.

The Uglyer

Through the 1990s on, consumers generally preferred health insurance to paying for health care themselves. There is more history here including government exempting employer-based health benefits from income taxes and wage controls after WWII, but the point is consumers preferred health insurance and the employer-sponsored variety was especially appealing. Health care costs had been increasing disproportionately to inflation for decades, and health providers looked for ways to stay profitable. The answer…consolidation.

The first major consolidation in health care occurred in the 1990s, followed by another wave in 2010 forward. Proponents of consolidation claimed it would reduce costs, result in a higher quality of care and improve the health of affected populations. Studies showed otherwise. Consolidation leads to substantial increases in price and evidence suggests it harms the quality of care. So what is the real reason for consolidation? Consolidation gives hospitals more bargaining power in a local market. In consolidated markets, fees increase anywhere from 20% to 60%. These fees are passed on to the insurer who in turn pass the cost increases on to employers or directly to enrollees. Contrast this with non-consolidated markets where participants cut costs since they lack bargaining power to simply raise fees. So basically consolidation is a way for hospitals to maintain profitability against a rising tide of regulation and cost increases.

The Uglyerer

The Affordable Care Act (ACA) helped along consolidation too. Some claim recent ACA-related consolidation was to combat regulatory uncertainty and that may be true, but many Ocare requirements directly contributed to consolidation and the elimination of small providers.

Under Obamacare medical coding changed to the ICD-10 standard. This meant switching from a standard with 13,000 medical billing codes to a standard with 70,000! The shocking result… cost increases. Survey results show a wide range of implementation costs for small practices, anywhere from $8,000 to over $100,000! There is also continued controversy over whether the new coding will reduce or increase billing costs. Early results indicate a higher rate of claim denials and about 25% less productivity under ICD-10. Additionally, in a survey of 38 medical billing companies, three went out of business due to problems in implementing ICD-10. [Applaud here]

Now, in all fairness, some of these ICD-10 codes are quite good. Imagine a group of healthcare professionals, sitting around a conference table, coming up with gems like:

Bitten by a turtle – W5921XS

Hit or struck by falling object due to accident to canoe or kayak – V9135XA

Struck by macaw – W6112XA

Hurt walking into a lamppost – W2202XA (Who would actually admit this?)

Pedestrian on foot injured in collision with roller-skater, subsequent encounter – V0001XD

Spacecraft crash injuring occupant – V9542XA (Seriously?)

Burn due to water-skis on fire – V9107XA (Has this happened even one time, ever?)

Struck by duck, subsequent encounter – W6162XD

Hurt at the library – Y92241

Sucked into jet engine, subsequent encounter – V9733XD (Twice?)

Unspecified balloon accident injuring occupant – V9600XS (Does this include accidents involving OMWC’s “balloon animals”?)

Hurt at the opera – Y92253

Bizarre personal appearance – R461 (…you talk like a fag, and your shit’s all retarded.)

Problems in relationship with in-laws – Z631

Stabbed while crocheting – Y93D1 (Why not stabbed by crochet needle?)

Prolonged stay in weightless environment – X52

Unspecified event, undetermined intent – Y34 (I’ll bet this one gets used a lot in ERs)
At least these people can do better than the SNL writing staff, so credit where credit’s due!

Of course, a sane person would wonder why it makes a difference whether you were bitten by a Macaw or a Sea Lion; or whether you suffered injuries during the re-entry of your spacecraft or a hard landing in a hot air balloon. Why doesn’t coding simply focus on injuries and treatment because that’s kind of the basis for billing? But that’s why I’m not a medical billing and coding expert I guess.

Other claims about ICD-10 include cost savings from fewer errors, due to the more “granular” coding structure. But that claim is a bit difficult to swallow as one would logically think adopting tens of thousands of more specific codes would result in higher error rates, not lower. ICD-10 is also supposed to reduce fraud by combating over-coding. If anything ICD-10 provides more opportunities to squeeze the system. A fraudster could use closely-related codes, and if called on the gambit, simply claim they didn’t understand the minor difference between one code and the other: A very plausible explanation given a catalog of 70,000 codes to sort through.

Ocare also included mandates for electronic medical records. The average cost of implementation for a single physician practice is a lowly $163,765. There are operational costs too, not to mention the cost of replacement systems when the old ones outlive their usefulness.

Aside from costs, the complexity of implementing electronic medical records (EMR) is causing some doctors to close their practices entirely, opting for direct or concierge pay. Meanwhile, many doctors that comply with EMR are getting burned out, spending time filling out useless forms, troubleshooting computer problems, and typing information into screens. The result is more time spent on compliance and less time with patients.

Large hospitals haven’t been immune from headaches over EMRs either. It turns out that digitizing someone’s entire medical history and putting it on a server is going to attract hackers. In 2015, 253 breaches exposed 113 million patient records. The number of breaches increased in 2016 to 450, while the total number of compromised records decreased to 27.3 million.

One of the big incentives for hackers to target medical records is the potential payoff. While a stolen credit card number may fetch $1 to $3, a stolen EMR goes for around $60! That’s because these records contain such a detailed and diverse amount of information that they can be used in all kinds of schemes. Personally, I find the hacking trend surprising, considering how knowledgeable health care administrators and staff are of IT security.

It’s Bad

In a bid to one-up cancer, the ACA included even more hits for the health care industry. One issue is non-payment by Obamacare enrollees. Doctors have faced difficulty verifying whether a patient with Ocare actually paid their premium or not. Office staff either have to spend upwards of an hour on the phone to try to verify a premium is paid, or take the risk of not getting reimbursed for care. This is all thanks to the 90-day grace period under ACA.

ACA included hefty cuts to Medicare and Medicaid payouts too. The former had average payouts reduced by 21.2% while the latter faced a 42.8% decrease in average payouts. I bet you’ll never guess what happened next! Shockingly, many doctors stopped accepting new Medicaid and Medicare patients, or just outright refused patients with the offending coverage. But while the little guys were either stuck with lower payouts or saying no to patients, good old market consolidation provided a great way for the big guys to make up the shortfalls. In consolidated markets, hospitals simply passed the lost reimbursement fees on to private insurance. What a way to win: Government saves money from entitlement programs by passing it on to private insurance, thanks to consolidated markets, which they helped enable. Win-win!

Of course, there was also the obligatory dose of crony capitalism in ACA, but hell, that doesn’t seem very important when weighed against the other effects. And no Ocare criticism would be complete without mentioning that restricting insurers from considering pre-existing conditions, increased costs for everyone. It effectively punished healthy people for those that treat their bodies like progressives treat a black Republican, but let’s get back to consolidation.

So to recap, consumers push for health insurance which kicks off the first big industry consolidation in the ’90s. Health care costs continue to rise and the light-bringer gives us Ocare, which pushes many small providers out of the market, and fuels even more consolidation of the big players. But maybe you’re not convinced consumers were really acting irrationally here. After all, if your employer is going to cover half of your health insurance cost, isn’t that better than trying to pay in cash? No.

Health insurance by its very nature increases cost. First, you are pooling risk so healthy people pay for less healthy ones. There is nothing wrong with this for catastrophic coverage if you share costs with other responsible parties. However, when you’re paying for my uncle who drinks nothing but diet Coke and Vodka, you’re wasting your money. Then there is the expense of medical billing and coding, claim processing, customer service, all sorts of other administrative costs, and then profit. When you accept health insurance, you accept all the expensive baggage that goes with it.

There is absolutely no sane reason to have health insurance cover your regular doctor’s visit or a trip to urgent care to get checked out for strep throat! If more people paid in cash, everyone would pay less. Of course, I’m aware of the challenges in trying to go all-in cash in today’s marketplace. Many providers just don’t get it and will offer you little to no discounts for cash payments, even though creating an insurance claim is costlier. So that’s the mess rational actors have to deal with. But, it boggles the mind how many Americans cannot grasp this principle: Insurance does not reduce costs, it increases them. Use it for the bankruptcy-inducing stuff only! I think it’s time to end this mental exercise and replace it with empirical evidence.

Exhibit 1:

Salvation lies in Oklahoma City, just off the 77. This is where Libertarianism is winning hearts, minds, and wallets. The Surgery Center of Oklahoma boasts of a praiseworthy 4.4 stars on Google Places and big savings on many surgical procedures. The savings are so big that Oklahoma’s public employee’s insurance fund covers 100% of the cost of any procedure performed there. Take that insurance to a regular a hospital and you’ll pay the deductible and co-pay. That’s because the prices at area hospitals are so much more expensive, the state will still pay more even if an employee covers the deductible and co-pay!

Exhibit 2:

If you are godly or care to fake it, cost-sharing ministries offer huge savings! Under Medi-Share a 30-year old would pay only $132 a month for medical sharing with a $5,000 annual household portion (basically a deductible). If you meet their health requirements your monthly payment drops to $117. Meanwhile, your average bronze plan on Obamacare has an average deductible of $6,000, an out-of-pocket maximum of $6,900, and a monthly premium of $311. Want to take a step up in coverage? An Ocare gold plan with a $1,200 deductible and a $4,900 out-of-pocket maximum, on average, costs $460 a month. But if the power of Christ compels you to buy a cost-sharing plan with a $1,250 annual household portion, you’ll pay only $235 a month, $207 if healthy. Bear in mind with cost sharing plans once you hit your annual household portion, covered medical procedures are 100% covered. Under normal insurance, once you hit your deductible, you’ll have to pay something like 20% of all medical costs until you hit the out-of-pocket maximum. That means with cost-sharing, you are saving in monthly costs and saving on big procedures!

In a rational world, consumers would look at health sharing ministries and ask what are they doing to get costs that low? But alas, this is not a rational world. Insert one tale of corruption and another legitimate contract dispute, both of which can easily be settled in the courts, and politicians scream “see we must regulate.” Professor Tim Jost of Lee University School of Law is particularly “concerned that you have people joining because they’re trying to find cheap coverage or because they’re ideologically opposed to the Affordable Care Act, or people who aren’t committed.” Oh, the horror. In fact, the health sharing ministry, Medi-Share, ran into problems operating in Kentucky. Apparently, the issue was that all users were paying into one shared fund. Medi-Share solved the problem by having people pay into their own individual funds and then transferring money between accounts to cover medical expenses. Good thing government was there to avert that crisis. Imagine the horror of using one account instead of tens of thousands, to manage the same money.

In a rational world, consumers would demand catastrophic coverage or none at all. In rationale world, employees would swamp HR departments and managers demanding they cut out insurance and save everyone some money. In a rational world, people would completely reject Obamacare and demand congress to allow secular medical sharing programs. In a rational world, those with extreme health conditions that can’t pay would rely on the charity of others to cover their bills, not government force. Irrationality is all around us.

For decades economists assumed real humans acted perfectly rational, but behavioral economics won that debate. Today, we have many examples of human irrationality. Sometimes, people just don’t do the math. It seems this is one of those times.

I think it’s time for one last recap: So government contributed to the obesity epidemic, which increased health care costs and probably increased demand for managed health care (health insurance). The gov’s food innovations seemingly influenced doctors to use the wrong solutions which cost a lot of money and a lot of lives. Consumers irrationally continued to view health insurance as the best way to pay for health care, even though if they did the math, cash-based options and catastrophic plans would have left them richer. Hospitals responded to increased costs and increased use of health insurance through consolidation: Consolidation gave them the power to demand higher fees from insurers, which insurers passed on to employers and private insurance enrollees. With costs on the rise, and the masses all in for health insurance or free coverage, Chocolate Jesus gave us all the STD known as the Affordable Care Act. This resulted in health insurance cost increases and more consolidation. So now we have a lower quality of care at a higher price with fewer options. But before you belligerently swear at Obama on your front lawn, remember to give a shout out to all the pricks that never realized health insurance was a bad deal. If people would have preferred direct or concierge pay options, with a little bit of catastrophic coverage, our health care landscape could like a lot more like the Surgery Center of Oklahoma Center, and a lot less like Lena Dunham.

Irrationally Libertarian

Many of us accepted Libertarianism into our hearts through logic and rational analysis. It could be a pragmatic perspective that government top men are incapable of making better decisions than individuals and free markets; and have completely failed to move the needle in a positive direction on society’s biggest problems. Or perhaps it is a strategic approach: The realization that the best way to deal with conflicting conservative and liberal ideologies, each wanting to impose their own views on everyone else, is to maximize freedom for all. Or it could be a moral approach, based on the fundamental right that no man has the right to rule over another. The point is most of us are driven to Libertarianism due to rationality. Irrationality is our enemy.

A good test of consumer irrationality is what I like to call the Walmart test: How many people complain about Walmart’s use of foreign labor, worker exploitation, and terrible customer service, but refuse to take their money anywhere else? This disassociation in cause and effect is a huge problem for Libertarians, as many of these consumers will then call on government to solve the problems in which they believe the oppressed consumer is powerless to address directly. This is the Achilles’ heel to Libertarian governance, an ever-present desire to create utopia through big government. For sustainable Libertarian governance to work, we must have buy-in from a critical mass of mostly rational actors that understand their dollars and time are votes in a free market! The case of health insurance consolidation shows us that most irrationalities don’t see less government as a solution; they simply want a different flavor of government solutions.

With this in mind, Libertarianism cannot succeed by responding to emotional appeals and inane political rhetoric in kind. Instead, we must continue to support logic and rational thought. Only that will fully convert the unbelievers and help us build a rational barricade against bubbles and government intervention, as we march for free markets. Simply getting regulatory victories is not enough. If we could enact a limited government tomorrow, in line with the original intent of the Constitution, the backlash would quickly destroy our gains in freedom. The people are not ready for Libertarianism. Joseph de Maistre said it best, “Every nation gets the government it deserves.” If we deserved Libertarian governance, we’d have it.

Now bow before the best-sourced article in all of Glibertaria! I assume my honorary degree from Columbia is in the mail.