Berkeley and MIT are leading the charge to move from “blackboard economics” where learned seers spout outdated theories to “real world economics” based on big data and scientific analysis.
Unlike the theory of gravity in physics, the economic laws of “supply and demand”, “price determination”, and “the invisible hand of the market” fail much more often. We need to understand when, where and why.
For example, “How does the “invisible hand of the market” explain why Americans are dumb enough to pay 5X more for their prescription drugs than the residents of other large industrialized nations?”
For example, “How does the “invisible hand of the market” explain why Americans are dumb enough to pay 5X more for their prescription drugs than the residents of other large industrialized nations?”
…Because the invisible hand is up our skirts while the government looks the other way.
Looking over Medicare options, I wonder what’s the diff between regular or advantage plans, and think it’s a cartel, either way.
Why go for one over the other?
And why get a medigap policy at all?
Sheesh, my head’s spinning like Linda Blair in The Exorcist.
In general drugs are priced much the same way as airline tickets. The economist Frank Ramsey showed this pricing structure back in the 1920s in situations where producers have high fixed costs (drug R&D or plane cost) and low marginal costs (pill production or the extra jet fuel for one more passenger).
The efficient solution is to soak the rich; the guy in the suit pays $1000 for his airline ticket while the guy with the backpack pays $200. The airline covers its costs with the high-priced tickets and can generate some marginal profit from the low-priced tickets. Similarly for drugs. We are the ‘suits’ which is why drugs cost more in New Hampshire than Nigeria.
In general drugs are priced much the same way as airline tickets. The economist Frank Ramsey showed this pricing structure back in the 1920s in situations where producers have high fixed costs (drug R&D or plane cost) and low marginal costs (pill production or the extra jet fuel for one more passenger).
The efficient solution is to soak the rich; the guy in the suit pays $1000 for his airline ticket while the guy with the backpack pays $200. The airline covers its costs with the high-priced tickets and can generate some marginal profit from the low-priced tickets. Similarly for drugs. We are the ‘suits’ which is why drugs cost more in New Hampshire than Nigeria.
“Ramsey pricing” ignores the “bulk purchasing discount” that every other large industrialized nation wrests from drug manufacturers. Americans, by law, are prohibited from doing so, and then screwed even more by their insurance carrier’s captive Pharmacy Benefit Manager (PBM).
Unlike the theory of gravity in physics, the economic laws of “supply and demand”, “price determination”, and “the invisible hand of the market” fail much more often.
That is why I chose, as my book about economics, “The Caine Mutiny”, a demonstration of how absolute power can be misused.
Thanks for posting your link, and the link to Dr. Belk.
He makes the case that one shouldn’t get a supplement, that A and B will cover what you’ll need.
“ When you have Medicare, you already have health insurance. The supplemental plans are really just insurance to cover the insurance you already have. How does that make any sense at all?
Only in health care do we consider it appropriate to use insurance to cover every possible expense no matter how mundane. I think it’s time we all took a step back to look at how much it’s costing us to rely so heavily on our health insurance for everything. Now that you see how much these policies cost and how little you’re likely to get from them, ask yourself: Are they really worth the price?”
What would justify paying the extra money to have a supplement?
What would justify paying the extra money to have a supplement?
A supplemental policy is a modest price. It can often pay for itself to a good degree year in and year out. In a bad year where there are many medical problems for a senior it becomes a major savings.
Blog arguments are fun to read and think over. Taking bloggers seriously can be just downright bad for your wallet and for your health. Better blog writers come off as massive experts totally competent. Does not mean for a moment they are competent at all.
<He makes the case that one shouldn’t get a supplement, that A and B will cover what you’ll need.
“ When you have Medicare, you already have health insurance. The supplemental plans are really just insurance to cover the insurance you already have. How does that make any sense at all?>
Read the fine print. Medicare A and B only cover 80% of the cost. Hospital costs can be astronomical. For example, the top-line cost of my bilateral mastectomy (for double breast cancer) was over $150,000 – and that was for only ONE night in the hospital with no complications. A Medigap policy would cover the 20% not covered by Medicare – in this case, $30,000.
Do yourself a favor and read a book about Medicare, which you can get out of the library. There are many options for Medigap policies.
Don’t take the word of anyone who is so ignorant of actual Medicare to say “The supplemental plans are really just insurance to cover the insurance you already have.” He could guide you into a ruinous mistake.
DH and I have traditional Medicare (A, B and D) plus a Plan G Medigap policy. It’s well worth the money. For the reasons to get traditional Medicare and NOT Medicare Advantage, ask intercst. The bottom line is that Medicare Advantage covers the little, maintenance expenses that are not covered by traditional Medicare (eyes, ears) but NOT the massive expensive from serious illness like surgeries or cancer care.
If you are healthy now, it’s hard to imagine that you could get sick (or injured) so badly that expenses in the hundreds of thousands of dollars can quickly accumulate.
Read the fine print. Medicare A and B only cover 80% of the cost. Hospital costs can be astronomical. For example, the top-line cost of my bilateral mastectomy (for double breast cancer) was over $150,000 – and that was for only ONE night in the hospital with no complications. A Medigap policy would cover the 20% not covered by Medicare – in this case, $30,000.
That’s actually not true. Not by a long shot.
You’d only owe $30,000 if the whole $150,000 was a Part B charge. (Part B covers doctor bills and outpatient IV drugs, lab tests, and x-rays/MRIs, etc.)
Your liability for a one-day hospital admission is limited to $1,556 for 2022 under Medicare Part A. It’s $1,556 whether the hospital bills for for $10,000 or $5 million.
Most retirees don’t understand the Gold-plated coverage Medicare provides compared to the POS (i.e., piece of s—) for-profit, health insurance we had pre-age 65.
“…you’re only responsible for 20% of Medicare’s approved cost for any medical service… Medicare’s approved fee is often a source of confusion for most people because it’s normally only a small fraction of the billed charge for a medical service.”
I understand Medicare approved costs are about 17% of the hospital/doctor bill.
A hospital/doctor bill of $150,000 x 0.17 = $25,500
And since you’re liable for 20% of that,
$25,500 x 0.20 = $5100 (for a very infrequent serious procedure.)
Wendy doesn’t appear to understand how Medicare Part A works. It’s not surprising since the insurance industry has spent billions of dollars on TV advertising telling lies to senior citizens.
If you get ill and spend a few days in the hospital, it’s very likely that the hospital bill we be 70% to 80% of the overall cost of the illness. The 20% that everyone keeps worrying about only applies to the “non-hospital bill” charges.
You liability for the hospital bill in 2022 under Medicare Part A is $1,556. It’s $1,556 whether they charge you $10,000 or $5 million.
I understand. So, how high can the Medicare adjusted bill be (for the part B “non-hospital bill”) on which you’d owe 20%?
If you’re getting chemotherapy for cancer which is being done on an entirely outpatient basis (i.e., no hospital admission required), you could have a 20% co-pay on $50,000 worth of Medicare reimbursements, but that’s likely the worst case. How much in insurance premiums are you willing to pay to avoid a one-time $10,000 bill? $1,000/yr in Medigap premiums, $2,000/yr?
“…you could have a 20% co-pay on $50,000 worth of Medicare reimbursements, but that’s likely the worst case. How much in insurance premiums are you willing to pay to avoid a one-time $10,000 bill? $1,000/yr in Medigap premiums, $2,000/yr?”
That’s helpful, knowing a part B payment could get that high. The supplemental premium would take 5-10 years to amortize. In that time, anything could happen. Seems like a good argument for a high deductible supplemental policy?
Perhaps Dr. David Belk, MD, who said one should not get a supplemental was more optimistic back in 2012 than today. I wonder what he’d say now.
I’m also reading more reasons to steer clear of an Advantage plan; coverage and providers are limited, benefits are subject to authorization and cancellation. Also, if you choose an Advantage plan, you lose your “guaranteed issue” after a year. If you want a supplement, you will be subject to underwriting, where they decide whether to take you on at all, likely with a higher price.
I’m also reading more reasons to steer clear of an Advantage plan; coverage and providers are limited, benefits are subject to authorization and cancellation. Also, if you choose an Advantage plan, you lose your “guaranteed issue” after a year. If you want a supplement, you will be subject to underwriting, where they decide whether to take you on at all, likely with a higher price.
Yes. I went to a free Medicare seminar put on by the WA State SHIP organization the year before I qualified for Medicare. (Every state has a SHIP organization.)
They emphasized that loss of a “guaranteed issue” Medigap plan if you decide Medicare Advantage is crap after a year. It’s also where I first learned that under Medicare your piece of a $1 million hospital bill was limited to about $1,500. That’s unbelievable to anyone who’s had a significant illness while covered by crap for-profit health insurance.
I contacted my local SHIP and after about a week they called back. The woman on the phone knew less than I. When I asked a question, I listened while she read to herself from the book. She said, “I’m new at this, so I’m learning with you.”
I really enjoyed the article in the opening post. It casts doubt on the economic dogma that has been repeatedly used for policy making. For quite some time, I’ve concluded economics at the highest levels is a popularity contest. The author does a nice job laying out his case.
I feel that important revelation was lost when the thread immediately pivoted to a discussion around Medicare. Very informative, but maybe not as important as how the economic dogma of the past fifty years influenced policy, resulting in our currently volatile and flawed economy. I’m very busy for a few more days, but I may start a new thread with the same article afterwards.
