Incentives Matter & Emergency Care Innovation

It amazes me that it has taken so long to come up with this simple innovation to the Federal emergency care mandate.

The article explains:

When someone comes into the Medical Center Hospital ER, they’re assessed to determine the severity of their ailments.

“They’ll all be seen by an ER physician,” Divisional Director for Emergency Services Dena Mikkonen said.

If the injury or illness is determined to be minor, they’ll be directed to a local clinic rather than be treated in the ER.

But if that person chooses to remain in the ER and have their minor ailment treated there, they will have to pay a $250 deposit, MCH Business Office Director J.R. Edmiston said.

This sounds reasonable.  This helps keep the ER capacity freed up to handle true emergencies and encourages people who do not have dire emergencies to use care that is more appropriate for their condition.

Of course, there was the predictable criticism (also from the article):

Federal law requires ER physicians to look at everyone who comes to the ER and treat those who have life-threatening illnesses or injuries, but depending on the initial ER examination for a referral is problematic, said Andrew Fenton, president elect of the California chapter of the American College of Physicians.

Based on the examination a doctor has to decide whether or not the person’s injury or illness requires a stay in the ER.

“Asking a physician to make such a determination is challenging in a short period of time,” Fenton said.

While I think this criticism is overblown, Fenton ignores that the patient can decide to stay by making the $250 deposit.

With everything there are trade-offs.  There are no perfect solutions.  A lot of things are justified by cherry-picking the trade-offs that suit our view.  

At some point a physician will make a bad call (humans are fallible), misdiagnose and send a patient off that needed emergency treatment.  Folks like Fenton will grab on to those stories and say this is bad policy and it’s worth treating everyone in emergency rooms “if we could just save one life”.

And they won’t give due consideration to all the trade-offs.

First, misdiagnosis and mistreatment occurs within the emergency room now.  We’ve all heard these stories. It’s not immediately clear how this new approach would increase misdiagnosis of life-threatening symptoms.

In fact, this approach may improve diagnosis and treatments of minor ailments. Sending the patient to another doctor could be better because second opinions from other doctors may catch things the first doctor missed.

That’s one positive trade-off Fenton would miss.

Also, he will not likely consider how many additional lives were saved by focusing ER resources on true emergencies.

He won’t understand that the opportunity cost for saving that “one life” may be two or three lives, because cramming the ER with patients with other minor ailments to save that one life-threatening misdiagnosis in a thousand (or more) may take ER capacity away from folks with true emergencies.

Fenton offers one trade-off to support his side.  The urgent care facilities may not have the facilities to do all the tests they need.  But, I think that’s a big maybe.  Again, with the second doctor checking, they may have a better chance of getting a good diagnosis than had the person stayed at the emergency room.

Fenton might say to me, You wouldn’t want to be the one person with the misdiagnosis.

To which I would respond, No. But you haven’t convinced me this will actually cause anymore misdiagnosis than occurs now.  Further, I also don’t want to be one of the two or three people with true emergencies that don’t get treated because the emergency room capacity is used by people with minor ailments.  At that point, the emergency room has ceased being an emergency room.  Much like how health insurance has ceased being insurance.

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Incentives matter

Sowell does it again this week:

During a recent Fox News Channel debate about the Obama administration’s tax policies, Democrat Bob Beckel raised the issue of “fairness.”

He pointed out that a child born to a poor woman in the Bronx enters the world with far worse prospects than a child born to an affluent couple in Connecticut.

No one can deny that. The relevant question, however, is: How does allowing politicians to take more money in taxes from successful people, to squander in ways that will improve their own reelection prospects, make anything more “fair” for others?

Even if additional tax revenue all went to poor single mothers — which it will not — the multiple problems of children raised by poor single mothers would not be cured by throwing money at them. Indeed, the skyrocketing of unwed motherhood began when government welfare programs began throwing money at teenage girls who got pregnant.

The great fiction has expanded, greatly

Bastiat told us what government use to be:

Government is the great fiction through which everybody endeavors to live at the expense of everybody else.

I’m not sure this is entirely accurate any longer. Over the years we stopped trying to live at the expense of everybody else alive at the time and expanded the fiction to include those in the future as well.

With debt to fund government during peace times, government became the way to avoid tough choices, leaving those for future generations to deal with.

Lately it seems the role of government has expanded even more.  Now it seems to be the way to avoid making any choice that might be politically unpopular or slightly uncomfortable, not just tough ones, and passing those on to future generations.

Extra Credit Assignment

If I were an econ or math professor I might be inclined to assign an extra credit for a short explanation of Buffett’s tax rate comparison to his secretary’s.

Nobody seems to be able to get this much ballyhooed comparison — and inspiration for Obama’s “Buffett Rule” — correct.

Here’s what my answer to the assignment would look like:

The above table shows a comparison between the taxes and tax rates paid by Buffett and his secretary, Debbie.

The first comparison (1) is made by Buffett in the media and is composed of three parts:

  1. Payroll taxes (Social Security and Medicare) paid by each individual.
  2. Payroll taxes paid on behalf of each individual by their employer.
  3. Individual Federal income taxes paid.

Buffett includes the portion of payroll taxes paid by their employer on their behalves, but ignores the corporate income taxes paid on his behalf by the companies that paid him dividends, which make up nearly all of Warren Buffett’s taxable income.

Dividends are taxed twice, once when earned as income by the company and again when the company pays the dividend to its owners.

Buffett and other commentators treat the low dividend tax rate as if it were a random and unfair artifact of the tax code.

Rarely is it acknowledged that there is a rationale for a lower dividend tax rate and it’s not just to make the rich richer.

Part of the rationale is that the combined corporate and individual tax rates on dividends is high at around 45% -50%. As Congress evolved the tax code — with the input from economists — one of reason they set the dividend tax rate low was to help offset the effects of the double taxation.

When the total dividend tax rate was higher, companies avoided paying dividends because of the high tax rate.  Some managers used double dividend taxation as an excuse to hold on to shareholder money and blow it in bad investments.

Others used a more tax efficient method of distributing money to owners — share repurchases.  Since there is no good reasons for the tax code to favor one form of cash distribution (repurchases) over another (dividends), dividend taxes were lowered to make both methods more equal.

But, therein lies the danger of such clever and complex systems: The next set of folks forget or don’t understand the rationale.  Or, perhaps they understand it, but choose to exploit (and feed) the misperception of low tax rates for their own political purposes.

To get a more apples-to-apples comparison between the real tax rates Buffett and Debbie pay (comparison 2), I estimated that the companies that paid dividends to Buffett had already paid $14 million in taxes on his behalf.  Now, this isn’t wholly accurate.  They really paid more (the real number is probably closer to $20 million), but I’m simplifying for the sake of understanding.

When I add the corporate taxes paid in, I find that Buffett pays a substantially higher tax rate (50%) than Debbie (37%) and the “Buffett rule” has not been violated. Not even close.

One final note: In addition to underestimating the amount of corporate taxes paid, some could quibble that my analysis ignores taxes Buffett paid when we earned the dividend-paying holdings to begin with.  That’s true and that means his dividends are actually taxed three times.  But, I thought just adding in what the company pays on his behalf in the current period should make a strong enough case for casual observers that Buffett and Obama are deceiving the public for political purposes.

Library ebooks hit snag

My local library reports that one reason their ebook selection is low is because four out of the “Big Six” publishers do not allow libraries to purchase their ebooks and the other two either have restrictive purchase policies are charge libraries more for ebooks.

In other words, these publishers are acting like Blockbuster in the early days of Netflix.

Change is a bear.  I understand wanting to cling on to profits from your traditional business model as long as possible.  But, just as Blockbuster learned, it works out better to be the change agent than the stick-in-the-mud.

Where does the Laffer Curve bend?

Laffer Curve

What is t*?

Thomas Sowell says that when tax rates are raised on high-income individuals, they respond to incentives by arranging their financial affairs differently to minimize those taxes.

Folks, like blogger Megan McArdle, lecture/patronize opponents of tax increases that current marginal tax rates are not near the bend in the Laffer Curve (the point where increasing tax rates would reduce revenue).

This is from Mark Perry’s blog, Carpe Diem:

The U.K. government is learning about the economic lesson that “if you tax something, you get less of it.”  Following an increase in the top marginal income tax rate to 50%, tax revenues from high-income taxpayers are falling, and are not going up, as the Treasury somehow expected by ignoring the economic lesson that “people respond to incentives.” A U.K. Treasury official explained the disappointing drop in tax revenues by saying it “was partly due to highly-paid individuals arranging their affairs to avoid paying the 50% rate.”  Duh.