Gekkonomics

You won't be surprised to learn that the University of Pittsburgh Medical Center's (UPMC) out-of-network fees are way above the national average. According to data compiled by the Center for Medicare and Medicaid Services, UPMC charges more than many of the nation's most highly regarded hospitals, such as the Cleveland Clinic, and twice as much as its only real competitor, Allegheny General Hospital (AGH). In 2010, UPMC's average charge for inpatient care was $121,765, compared to $74,406 at the Cleveland Clinic and $55,205 at AGH.

Out-of-network fees originated in the 1980s, when Medicare and Medicaid began reimbursing hospitals prospectively rather than after-the-fact for some procedures. Insurance companies then began to negotiate discounts for their subscribers, in exchange for channeling those subscribers to “approved” doctors and hospitals. By 1990, only people without health insurance and international visitors were charged the “full cost” of medical services—the out-of-network rate. For people with health insurance, the “full cost” is really just funny money—an unrealistically high charge that appears on their statement. Health insurance pays only a fraction of that cost, and the remainder is waived.

However, in June 2013, out-of-network fees may become real money for many Western Pennsylvanians if UPMC, the region's largest hospital chain, carries out its threat not to negotiate an agreement with Highmark, the region's largest health insurance company.

If we accept the Medicare reimbursement rate as the real cost of hospitalization plus a modest profit for the provider, then UPMC has an average markup of 850%. Dr. Gerald Anderson, a health policy expert at Johns Hopkins University, is quoted as saying, “I think they have an ethical problem in trying to say they should be paid eight times more than what it costs to provide the service.”

This brings us to the presumed motive for UPMC's and Highmark's behavior—monopoly control and the ability to fix prices. Large corporations move toward monopolies through two types of integration, horizontal and vertical.

Horizontal integration occurs when companies buy out competitors that provide the same product or service, thereby increasing their market share. For the last decade, UPMC has been aggressively buying other hospitals in the region. AGH is its only major remaining competitor. If it provides an essential service and has no competitors, it can charge whatever it wants.

Vertical integration occurs when a company controls several stages in the supply chain that produces a product or service. For example, a company that sells natural gas to consumers may also own gas wells and control prices by speeding up or slowing down production. Or a movie studio may own a theatre chain which preferentially books its films and refuses to book films by competitors. In 1998, UPMC started its own health insurance division, the UPMC Health Plan. Highmark retaliated by agreeing to purchase AGH. Of course, both hospitals and insurance companies can use the threat of out-of-network fees to pressure clients to purchase the complementary service from its own affiliate.

It appears that both UPMC and Highmark are trying to obtain monopoly control of the health care system in Western Pennsylvania. Since our very lives are at stake, if either of these “nonprofits” achieves their goal, they will be in a position to make us what organized crime calls “an offer we can't refuse.”

Of course, this kind of outrageous profit-taking would disappear under a single-payer health care system.

Policy by Anecdote

On Monday, the Pennsylvania Department of Public Welfare (DPW) announced that, as of May 1, 2012, they will begin an asset test to determine if citizens are eligible for aid under SNAP, the Supplemental Nutritional Assistance Program, better known as food stamps. People under 60 will be ineligible for food stamps if they have more than $2000 in personal savings or other assets. Three items do not count toward the $2000 limit: their home, their retirement benefits, and one car.

In other words, if you lose your job and have $20,000 in the bank, you are not eligible for food stamps until you've spent $18,000 of your savings. This is not just mean-spirited, it is counterproductive. Prevailing theory and research on poverty suggests that poor people are trapped in a vicious cycle of poverty in which low income results in little or no savings, leading to intermediate outcomes such as poor health care and less education, which ultimately cause poverty to persist. Forcing people to be destitute before they qualify for public assistance makes it less likely they will ever break out of cycle. Since poverty has so many social costs, i.e., crime and urban decay, the new policy is not only harmful to poor people, but to society as well.

Pennsylvania's action is unusual during these economic hard times, since many states have eliminated their asset tests. The Rendell administration eliminated Pennsylvania's asset test in 2008. A total of 35 states have no asset test. Pennsylvania will join ten other states allowing maximum assets of $2000. The other four states have higher maximums.

What's going on? The change doesn't seem to be motivated by a desire to save money. SNAP is supported by the federal government. DPW only pays the cost of administering the program. But those costs will go up, because case workers will now have to survey each applicant's assets to determine whether they are eligible. If enforcement of the $2000 limit turns out to be sporadic or inconsistent, as certainly seems possible, this may permit prejudice and discrimination to influence whether people are eligible for food stamps.

What's really going on? Deep into the Post-Gazette article, we find a clue:

Some say the sudden call for an asset test coincides with the widely publicized story late last year of a Michigan man who won millions in a lottery but retained his food stamps.

DPW spokesperson Ann Bale acknowledged that they “constantly” hear from citizens complaining of food stamp abuse. However, Pennsylvania has one of the lowest food stamp fraud rates in the nation—one-tenth of 1%. Perhaps DPW gets phone calls not because of actual fraud, but due to stories such as this one on Fox News.

This case reminds me of Ronald Reagan's campaign fable about a Chicago “welfare queen” who allegedly cheated the government out of $150,000 and drove a new Cadillac. The story inspired a hit country and western song, “Welfare Cadillac,” by Guy Drake. It was a good story, but it was exaggerated and entirely unrepresentative of welfare recipients in this country.

Social psychologists point out that people are more easily persuaded by anecdotes than by statistical evidence. Belief in a statement, such as, “the food stamp program is widely abused,” depends largely on the ease with which we can recall or imagine examples that support the statement. Media exposure is a major source of the availability of anecdotes.

The anecdotes don't have to be true. For example, Melanie Green and Tim Brock did a study in which participants read a story, “Murder at the Mall,” about a young girl being killed by a recently released mental patient. Some were told the story was true; others were told it was a fictional short story. Both groups were more opposed to releasing former mental patients into the community than a control group that didn't read the story at all. There was no difference between those who were told that the story was true and those who were told it was made up.

I suspect Reagan's “welfare queen” played a role in Bill Clinton's eventual acquiescence to the pressure to "end welfare as we know it.” The problem, of course, is that you can make up an anecdote to “prove” virtually anything. In this blog, I'll argue that that public policy should be based on research evidence.

Update (2/1/12)

On February 1, the DPW announced a change in the asset limits.  People under 60 will be able to retain assets of up to $5,500, while those who are over 60 or disabled can keep up to $9,000.  

Romney's Gaffe

Governor Mitt Romney's statement, "I like being able to fire people," has been widely misinterpreted.  He did not say that he enjoys firing his employees. The reality is much worse. The remark was made in the context of a discussion of health insurance. It shows how out of touch Romney is with the health insurance system in this country.

Please read this comment by Aaron Carroll, from The Incidental Economist blog.  He points out why most Americans can't fire their insurance company. I have nothing to add. I just wanted to call it to your attention.

Housekeeping

In December 2011, before starting this blog, I published five articles on health care policy on the PUSH (Pennsylvanians United for Single-Payer Healthcare) blog. I also did two trial blog posts relating to science and human sexuality. I have added these seven blog posts to the end of this blog roll, in the usual inverse order of when they were originally written.

In the future, any blog entries about health care will be cross-posted here and at the PUSH website.

Kicking Assessments

This post deals with a local Pittsburgh controversy. My apologies to out-of-towners. Maybe Pittsburgh's political buffoonery is similar to foolishness taking place elsewhere.

The following was written on Friday, December 30:

Judging by media coverage of our tax reassessment controversy, Pittsburgh property owners will soon be marching on city hall with torches and pitchforks. I'd like to take a step back to see whether all this confusion and anger is really justified.

Property values in Allegheny County have not been reassessed since 2002. When there is a long time between reassessments, this places an unfair burden on people whose property values are static or declining, while unfairly benefitting those whose property has increased in value. Since the second group is generally more affluent than the first, failure to reassess is a Robin-Hood-in-reverse social policy. It steals from the poor to give to the rich.

Our politicians and the media have stoked fears that reassessment will lead to tax increases, but it shouldn't if our elected officials follow the law. State law prohibits windfall profits from a reassessment. Municipalities are required to adjust their millage rates downward to ensure the changes are revenue neutral. The magnitude of the tax increases that our more affluent citizens must pay should be balanced by declines in the taxes of less affluent residents.

That doesn't mean Allegheny County's reassessment will be completely fair. Any errors will be heavily publicized by the media, but the appeal process is intended to remedy them, provided they are random and not so numerous as to overwhelm the system.

There will also be families whose personal circumstances do not match those of their neighbors, i.e., people on fixed incomes living in prosperous neighborhoods. Whether their tax increases are unfair is debatable. People benefit from living in a nice neighborhood regardless of the value of their own home. The homestead tax exemption is a partial solution to this problem. We can also take perverse comfort in the fact that Pittsburgh is highly segregated by social class, thus minimizing these mismatches.

Both the outgoing and incoming Allegheny County Executives, Dan Onorato and Rich Fitzgerald, have argued that the county should not be required to reassess its properties unless the rest of Pennsylvania is also forced to do so. I agree that the other counties should be required to update their assessments, since that is fairer to the residents of those counties. However, if frequent reassessment is a beneficial social policy, Allegheny County should do it regardless of what other counties are doing. The only people harmed by this policy are homeowners who are currently getting a free ride. Their taxes will be higher than if they lived in some other county. But their taxes should be higher. To call this unfair is a bit like saying that if Allegheny County enforces laws against DUI but Butler County does not, this is unfair to the drunk drivers of Allegheny County. Is this really a compelling argument?

Our public officials, nominally members of the Jackass Party, have wasted our time and money by refusing to implement the reassessment. This would seem to be a clear indication of their class loyalties. The working poor seldom make campaign contributions. While their rhetoric is intended to mislead us into thinking they are trying to protect poor people from losing their homes, it is the wealthiest persons (and “corporate persons”) who benefit from the delay.

These class loyalties would be more obvious if the news media did a better job of presenting the issues involved in reassessment. Unfortunately, the Pittsburgh Post-Gazette and the other media have added to people's confusion and anger by framing their news stories primarily as “the looming threat of a tax increase,” rather than using the more accurate frame of “restoring fairness to our tax system.”

Fortunately, I didn't post the preceding note because I hadn't yet worked out some of the kinks in my blog. Since then, there have been several developments that have added some nuance my opinion.

It was announced that Pittsburgh residences have increased in value by 46% due to the reassessment. The average for commercial properties is 71%, for an overall average of 57.89%. This should give homeowners an idea of whether their taxes will increase or decrease and by how much. For example, my assessment went up 76%. Subtracting 58% from 76%, I should expect my taxes to increase about 18% as a result of the reassessment. Chris Briem has analyzed these changes in value and found that approximately two-thirds of Pittsburghers will see their taxes drop, while fewer than 5% will be hit with a tax increase of 100% (double) or more. If this is true, Pittsburghers have been hit with an epidemic of false consciousness.

There are some indications that inconsistencies in the reassessment are not random. Rich Lord of the Post-Gazette analyzed the new values in three neighborhood blocks. In increasing order of affluence, they are Sheffield Street in Manchester, Pius Street on the South Side Slopes, and Saint James Place in Shadyside. Contrary to what we might have expected, the assessments increased by 118% in Manchester, 66% in on the Slopes, and only 21% in Shadyside. The average assessment exceeded the average recent sale price in Manchester, but was lower in the other two locations.

Ruth Ann Dailey, the P-G's most conservative local columnist, has suggested there was social class bias in the reassessment: “I'd bet dollars to data entry clerks that we'll find this situation holds true throughout the city—the percentage increases in poor neighborhoods' assessments will be much greater than the increases in the wealthier ones, because assessors can't conceive that anyone's home could be worth so little.”

It is important to find out if this allegation is true. The P-G's sample is far too small to draw a firm conclusion. Someone should analyze a much larger sample of reassessments randomly selected from around the city. If there is evidence of social class bias, they must be all discarded.

Ms. Dailey's benign explanation for class discrimination is not entirely convincing. If data entry clerks were systematically mistaken, I'd bet dollars to campaign contribution checks that these biases were somehow transmitted down the food chain from the politicians at the top. As Lily Tomlin said, “No matter how cynical you get, it's impossible to keep up.”

This morning's paper reports that Rich Fitzgerald has “thrown out” the reassessments. Our 2012 tax bills will use the old rather than the new values, setting up a confrontation with Judge R. Stanton Wettick, Jr., who ordered the reassessment. Fitzgerald has said he will go to jail rather than give in. Judging from some recent reports of conditions in our state prisons, it might be a good idea for all incoming government officials to spend a few nights there, just to give them an additional perspective on how some of their citizens live.


Update (1/14/12)

On Thursday, Allegheny County Executive Rich Fitzgerald faced off against Judge Stanton Wettick. Wettick blinked. The reassessment has been postponed for a year. Poor people will continue to pay more than their share of taxes while rich people and corporations will continue to benefit. Fitzgerald calls this “a great victory.” Next year, they will fight the same battle again. In Pittsburgh, nothing ever gets settled.

After the commercial property assessments were released, the business community, with the help of its friends at the Post-Gazette, went into a front-page, full-court press. We were told that the reassessments of the downtown skyscrapers had no rhyme or reason, and that if corporations were forced to pay their fair share of taxes, they would leave Pittsburgh and throw the city into another recession. The one-year delay gives their high-priced lawyers an opportunity to appeal the reassessments. Should they win some of these battles, reductions in the assessed values of $200 million buildings will have a significant impact on the overall 58% increase in value of city property. If that percentage drops, homeowners will pay more taxes.

One helpful development is that some local journalists, notably Len Barcousky and Brian O'Neill, started to get it, and to inform their audience that the majority of Pittsburghers would have been helped, not hurt, by the reassessment. Blogger Chris Briem's analyses played an important role in spreading that message.

Fitzgerald says he will use the next year to persuade state government to order a reassessment of all the real estate in Pennsylvania. With the Elephants in total control of every branch of state government, it's hard to believe he's serious.

The G.O.P. Olympics and the Blame Game

This post originated with an article entitled “The Ten Craziest Economic Policy Ideas of 2011.” In October, Florida State Representative Ritch Workman, a member of the Elephant Party, introduced a bill to end the state's ban on dwarf tossing. (In case you're wondering, I scanned several articles about Rep. Workman's proposal, and none of them suggested that he was any less than completely serious.)

Dwarf tossing is a contest usually held in bars in which participants compete to see who can throw a dwarf the farthest. The dwarfs wear padded clothing and are thrown onto a mat. In a variation, they wear Velcro clothing, are tossed at a Velcro-coated wall, and the goal is to see who can toss them the highest. Finally, there is a low-rent variation in which the dwarfs are tossed into the waiting arms of the audience. (If you're curious to see what a dwarf toss looks like, you can check it out on You Tube.)

Photo by djmarmite

For reasons about which I hesitate to speculate, this sport caught on in Florida in the 1980s. In 1989, after pressure from the Little People of America, the Florida legislature passed a bill banning the practice. Violators may have their liquor license revoked. The bill was probably helped along by the death of a dwarf, of alcohol poisoning, during a contest. There were also reports of injuries to dwarfs, including paralysis. (Little people are particularly prone to back injuries.) Dwarf tossing is also banned in New York state. To the best of my knowledge, the rest of us are free to practice the sport, if we can find a willing victim.

As the article suggested, Workman justified ending the ban on economic grounds: “All that it does is prevent some drawfs from getting jobs they would be happy to get. In this economy, or any economy, why would we want to prevent people from getting gainful employment?”

However, Workman may have also been expressing his libertarian philosophy: “I'm on a quest to seek and destroy unnecessary burdens on the freedom and liberties of people. This is an example of Big Brother government.”

By coincidence, I used to ask college students to discuss dwarf tossing as a way of introducing the ideas in John Stuart Mill's essay, On Liberty (1859). As you probably know, Mill argues that people should be free to do whatever they want, provided they do no harm to others. The state has no right to restrict your freedom merely to prevent you from harming yourself, either physically or morally. Presumably, the tossees in a dwarf toss are willing participants in exchange for money. Mill would say that it is paternalistic for the state to protect them against their will.

While I did not collect any data, it appeared to me that only a minority of students thought that dwarf tossing should be banned. These students were concerned not only about the risk of injury, but the fact that it is degrading and dehumanizing to treat physically handicapped people in this way. Of course, an individual who agrees to prohibit dwarf tossing is on a slippery slope. This opens up the possibility that other dangerous or humiliating activities (i.e., drug taking, prostitution, high school football) might also be restricted in the interest of public safety or the moral order.

However, in my experience, the majority of students opposed any restrictions on dwarf tossing. They emphasized the point that the dwarfs didn't have to agree to be tossed. They had a choice, and it is wrong to take that choice away from them. Maybe that's why so many politically engaged college students describe themselves as libertarians and support Ron Paul for president.

The problem, as I see it, is that they overemphasized the “choices” dwarfs make and failed to recognize how much those choices are constrained by factors beyond their control. The physical stature and poor general health of little people limits their job possibilities. They often work as spectacles in the entertainment industry and are the subject of negative stereotypes. While many dwarfs qualify for disability-related social security, this hardly provides a standard of living to which most Americans aspire. All of these factors limit the amount of choice little people have and channel them into making the “decision” to be a tossee.

American middle class ideology emphasizes individualism, independence and freedom of choice. We fail to take into account the fact that, for many people, the only “choices” available are all quite similar or almost equally undesirable. We don't recognize how much our own and—especially—others' choices are limited by our social environment.

Social psychologists are beginning to study the effects of this free choice ideology on our social and political attitudes. For example, in 2011 studies by Savani, Stephens and Markus, and by Savani and Rattan, the authors reminded participants of the concept of choice by having them either write about their own past choices or identify choices in the behavior of others. Compared to control participants who performed similar tasks not involving choice, those participants for whom choice was primed:

• Show decreased empathy and increased victim blaming for disadvantaged people.
• State less support for social policies that promote social equality (i.e., affirmative action) or public benefits (i.e., reducing air pollution), but greater support for individual rights (i.e., drug legalization).
• Were less disturbed by income inequality, and less willing to support policies that redistribute income more equally (i.e., progressive taxation).

These studies imply that the concept of choice is sometimes used to justify discrimination. For example, it is said that women deserve less-than-equal pay because they “chose” to take time off to bear and raise children.

The next time you go into the voting booth to choose between two candidates whose policies are virtually identical, and with whom you disagree on most issues, you might want to remember that, if you don't like the outcome of the election, you have only yourself to blame, since, after all, you had a choice!

Here's a talk by Nicole Stephens on social class differences in the understanding of choice. (It is posted in three parts, each about nine minutes long.)

I managed to toss that dwarf quite far, didn't I?

New Year, New Blog

I've been meaning to do this for a long time.

This blog's title is inspired by Daniel Kahneman's 2011 book, Thinking, Fast and Slow.  In it Kahneman presents the theory, well accepted in social psychology, that our thought processes can be described as if they are organized into two systems.  System 1 is automatic, effortless and outside our awareness.  It consists of innate responses to external stimuli and well-learned patterns of behavior.  It is likely to make errors, such as overreacting to our fears.  System 2 is deliberate and effortful.  It is what we recognize as the content of our consciousness.  While System 2 can also make errors, careful thought offers our best hope of responding rationally to an increasingly difficult environment.  Here's a link to a recent lecture (about an hour long) by Kahneman on the subject of his new book.

We live in a country in which a major-party candidate for President has implied that allowing gay people to have sex will lead people to have sex with animals.  It is hoped that this blog will encourage more rational thought.  Specifically, I hope to apply the best available knowledge to the solution of our many social and political problems.  And to have a good time doing it.

Since I'm a social psychologist, many of my examples will come from that field.  However, I will touch on many other fields, including sociology, economics, political science, communications media, and the environmental sciences.  Since no one can be an expert in all these areas, I hope you'll bear with me and correct me when I'm wrong.

The posts are intended for general audiences, so if you find them either too technical or too simplistic, please let me know.

Your comments and suggestions are always welcome.