It's somewhat difficult to build on George Will's good column in this week's Newsweek about the recently passed law criminalizing most Internet gambling, but I'll give it a try with two additional broader philosophical points:
a) The government should not be legislating morality, especially in this hypocritical manner. Morality should certainly guide legislation, but legislation should not enforce morality. Freedom means nothing if it constrains the freedom to make potentially bad choices. (This is a huge part of why I think so much of the Muslim world is so messed up, frankly - it has nothing to do with Islam per se, and quite a bit to do with governments viewing their role as enforcing Islam's notion of morality.)
b) "Victimless crimes" should not be criminalized. Yes, some problem gamblers or alcoholics let their vices get out of control to the point where it clearly is not victimless, in which case the right thing is to define those lines and criminalize the behavior that has victims. Millions of people every day consume alcohol or gamble, though, with no problems whatsoever.
Friday, October 20, 2006
Insurance Irony
There's an old joke about banks that says that in order to get a loan you first have to prove that you don't need it. Health insurance is similar in many ways, and likely to get moreso.
At my physical exam last week, my doctor expressed his opinion that over the next decade or two we will probably find ourselves doing more genetic testing to predict predispositions for cancer and other diseases with strong hereditary links. He further opined that this naturally raises a host of issues with insurance companies and privacy, since people who have marker genes for some nasty illness will either be charged outrageous rates for insurance or else will be denied insurance altogether. Or, an alternative consequence would be that people would avoid having these tests done in order to avoid these outcomes - which seems to me to be an even worse outcome, frankly.
I think that either outcome would be a shame, of course, but I think it is also unnecessary. In fact, I think there is possibly an opportunity for a whole new business model to grow.
Let's step back for a moment and understand why people buy insurance and why insurance companies would charge higher rates (or refuse to offer coverage) to people with known, quantifiable risks. At the simplest, insurance companies are betting that you'll stay healthy while policyholders are betting that they will get sick. The word "bet" here is not accidental - it's entirely a statistical process. The insurance company makes money by charging rates that cover the expected rate of claims, plus a small margin for profit. In exchange, the value for the patient is that the financial downside potential of getting sick is capped.
This, of course, only works because of three reasons:
Let's take this to its logical extreme to see why my doctor's fears are not unreasonable: suppose that the insurance companies could predict with 100% certainty the future healthcare needs of a given individual. What premium would they charge? Precisely the cost of that healthcare plus some margin (hopefully reasonable!) for profit, of course. On the other end, if a person knew that they would remain perfectly healthy until they die by getting hit by a bus, they would not bother buying any health insurance. In this world of perfect knowledge, therefore, there really is no need for an insurance product at all, since the only people who need insurance would end up having to pay more (by the profit margin) than the health care would cost out-of-pocket. Obviously, that's not good for the insurance companies, nor, frankly, is it good for customers because they have not been able to cap their downside expenses.
In other words, in a world of perfect information, insurance collapses because conditions 1 and 2 above fail. Of course, perfect information is not now nor will it ever be possible, but we will continually get closer.
So how do you prevent these fears from becoming reality as we get closer to perfect information? I think one possible answer (and the potential business opportunity to which I alluded) is by providing an anonymizing buffer to the insurance companies.
Here's how it might work. A buffer company collects customers in groups of, say, 1,000. It collects all of the information it can about the customers so that risk assessment can be accomplished as accurately and completely as possible. It then contracts with an insurance company to insure the whole 1,000 person lot.
If there are, say, 200 smokers in that group of 1,000 and 150 people who are likely to get Alzheimers, the insurance company is told these facts. However, the insurer is not told which members of the group of 1,000 are the smokers or the Alzheimers candidates, so it cannot cherrypick the healthy patients - it must cover the whole group of 1,000 or not. The premium it charges, of course, must reflect the fact that (in this example) 15% will likely get Alzheimers and 20% are strong candidates for lung cancer. However, because the group is insured as a block, this model forces the risk to be shared/spread among healthy and unhealthy, and the insurance company is forced to cover all using statistical models.
Of course, premiums should not be the same for everyone. People with discretionary risk factors such as smoking should pay higher premiums, young healthy people typically should pay lower premiums than older people who are almost certain to make greater use of health care services. The buffer company could adjust the premiums as needed to make sure that, in the example above, the smokers pay more than the non-smokers. But by anonymizing/grouping patients, it becomes possible to make sure that everyone can get insurance, to make sure that people with non-discretionary health issues (i.e., inherited) can have reasonably priced coverage, and to make sure that there is no dis-incentive to collecting the most accurate and most complete information possible.
There are a thousand business model details that would need to be worked out to make this new intermediary business work, including the obvious one of "how would it make money?" I suppose that if I were interested in acting on this, I'd be diving in to these details. But I'm not; I leave execution of this idea as an exercise for the reader. I merely offer it as a possible way to solve the "problem" of constantly improving medical information.
At my physical exam last week, my doctor expressed his opinion that over the next decade or two we will probably find ourselves doing more genetic testing to predict predispositions for cancer and other diseases with strong hereditary links. He further opined that this naturally raises a host of issues with insurance companies and privacy, since people who have marker genes for some nasty illness will either be charged outrageous rates for insurance or else will be denied insurance altogether. Or, an alternative consequence would be that people would avoid having these tests done in order to avoid these outcomes - which seems to me to be an even worse outcome, frankly.
I think that either outcome would be a shame, of course, but I think it is also unnecessary. In fact, I think there is possibly an opportunity for a whole new business model to grow.
Let's step back for a moment and understand why people buy insurance and why insurance companies would charge higher rates (or refuse to offer coverage) to people with known, quantifiable risks. At the simplest, insurance companies are betting that you'll stay healthy while policyholders are betting that they will get sick. The word "bet" here is not accidental - it's entirely a statistical process. The insurance company makes money by charging rates that cover the expected rate of claims, plus a small margin for profit. In exchange, the value for the patient is that the financial downside potential of getting sick is capped.
This, of course, only works because of three reasons:
- The risk for a given person gets spread among many people, including healthy people
- Information about who will get sick (and how sick they will get) is imperfect
- Insurance companies have good oddsmakers figuring out the right premiums to charge each policyholder based on known risks (e.g., smoker, overweight, etc.)
Let's take this to its logical extreme to see why my doctor's fears are not unreasonable: suppose that the insurance companies could predict with 100% certainty the future healthcare needs of a given individual. What premium would they charge? Precisely the cost of that healthcare plus some margin (hopefully reasonable!) for profit, of course. On the other end, if a person knew that they would remain perfectly healthy until they die by getting hit by a bus, they would not bother buying any health insurance. In this world of perfect knowledge, therefore, there really is no need for an insurance product at all, since the only people who need insurance would end up having to pay more (by the profit margin) than the health care would cost out-of-pocket. Obviously, that's not good for the insurance companies, nor, frankly, is it good for customers because they have not been able to cap their downside expenses.
In other words, in a world of perfect information, insurance collapses because conditions 1 and 2 above fail. Of course, perfect information is not now nor will it ever be possible, but we will continually get closer.
So how do you prevent these fears from becoming reality as we get closer to perfect information? I think one possible answer (and the potential business opportunity to which I alluded) is by providing an anonymizing buffer to the insurance companies.
Here's how it might work. A buffer company collects customers in groups of, say, 1,000. It collects all of the information it can about the customers so that risk assessment can be accomplished as accurately and completely as possible. It then contracts with an insurance company to insure the whole 1,000 person lot.
If there are, say, 200 smokers in that group of 1,000 and 150 people who are likely to get Alzheimers, the insurance company is told these facts. However, the insurer is not told which members of the group of 1,000 are the smokers or the Alzheimers candidates, so it cannot cherrypick the healthy patients - it must cover the whole group of 1,000 or not. The premium it charges, of course, must reflect the fact that (in this example) 15% will likely get Alzheimers and 20% are strong candidates for lung cancer. However, because the group is insured as a block, this model forces the risk to be shared/spread among healthy and unhealthy, and the insurance company is forced to cover all using statistical models.
Of course, premiums should not be the same for everyone. People with discretionary risk factors such as smoking should pay higher premiums, young healthy people typically should pay lower premiums than older people who are almost certain to make greater use of health care services. The buffer company could adjust the premiums as needed to make sure that, in the example above, the smokers pay more than the non-smokers. But by anonymizing/grouping patients, it becomes possible to make sure that everyone can get insurance, to make sure that people with non-discretionary health issues (i.e., inherited) can have reasonably priced coverage, and to make sure that there is no dis-incentive to collecting the most accurate and most complete information possible.
There are a thousand business model details that would need to be worked out to make this new intermediary business work, including the obvious one of "how would it make money?" I suppose that if I were interested in acting on this, I'd be diving in to these details. But I'm not; I leave execution of this idea as an exercise for the reader. I merely offer it as a possible way to solve the "problem" of constantly improving medical information.
Monday, October 09, 2006
China might need an omelette on its face
This week North Korea defied the whole world - including China - by testing a nuclear weapon. That leaves egg on China's face, but I fear it will take more eggs before China behaves like the responsible world member that it wishes to be treated as.
Like a teenager who demands to be treated like an adult but has not yet demonstrated that they have the maturity of an adult, China has long demanded a level of respect on the world stage that it has not yet earned. Like a teenager, it finds itself in a grown-up body economically (and militarily, frankly), but from North Korea to Taiwan to Tibet to a list too long of shady business partners, it has not yet demonstrated the maturity that such a position requires.
Every country must, of course, follow its national interests; even when those interests are opposed to the interests of other nations. The United States certainly does. However, true leader nations also recognize that their long-term interests often require doing things that are short-term undesirable. China has been unwilling to reign in North Korea because of fears of instability and refugees. But by propping up the North Koreans, they're actually creating a far worse long-term problem not only for China but for the whole community of nations.
This was their moment for China to stand up on the world stage and show that it knows how to do the right thing, even when it is difficult to do. They failed this test miserably. Pyongyang has embarassed Beijing, and, frankly, Beijing deserved it.
The right thing to do here is not a pleasant one. China needs to seriously curtail its support of North Korea. Given Pyongyang's policy of putting the military first, doing so will almost certainly cause even more hardship for the already suffering population of the North, but failure to do so only prolongs their existing suffering.
It's time for China to do the right thing. I hope they do, but I am not holding my breath, for the Chinese regime has shown time and again that it has no interest in the broader good, only its own.
Like a teenager who demands to be treated like an adult but has not yet demonstrated that they have the maturity of an adult, China has long demanded a level of respect on the world stage that it has not yet earned. Like a teenager, it finds itself in a grown-up body economically (and militarily, frankly), but from North Korea to Taiwan to Tibet to a list too long of shady business partners, it has not yet demonstrated the maturity that such a position requires.
Every country must, of course, follow its national interests; even when those interests are opposed to the interests of other nations. The United States certainly does. However, true leader nations also recognize that their long-term interests often require doing things that are short-term undesirable. China has been unwilling to reign in North Korea because of fears of instability and refugees. But by propping up the North Koreans, they're actually creating a far worse long-term problem not only for China but for the whole community of nations.
This was their moment for China to stand up on the world stage and show that it knows how to do the right thing, even when it is difficult to do. They failed this test miserably. Pyongyang has embarassed Beijing, and, frankly, Beijing deserved it.
The right thing to do here is not a pleasant one. China needs to seriously curtail its support of North Korea. Given Pyongyang's policy of putting the military first, doing so will almost certainly cause even more hardship for the already suffering population of the North, but failure to do so only prolongs their existing suffering.
It's time for China to do the right thing. I hope they do, but I am not holding my breath, for the Chinese regime has shown time and again that it has no interest in the broader good, only its own.
Sunday, October 08, 2006
We could all learn from this
So what to you do when a madman shows up at your community's school and murders 5 of your children and shoots 5 more before killing himself? Mourn at his funeral, apparently. Almost half of the people at the killer's funeral were Amish.
Wow, that is unbelievably classy; Webster's should rewrite its definition of the word to cite this example. How many of us would do the same? Many religions preach forgiveness and peace, but very few actually act on those convictions when tested as the Amish have been this week.
The Amish had my sympathies this week for an unspeakable tragedy, they now have my awe as well.
Wednesday, October 04, 2006
The problem with the abortion "debate"
Abortion is certainly a sticky issue in America, and probably one of the longest-lasting; it's been a front-burner issue for many people for pretty much my whole adult life; few other issues can claim that sort of longevity. Why is this? What is it about abortion that makes it so fundamentally intractable?
I think the biggest problem is that, as with many other ideology-based issues, it's one where the principle zealots talk right past each other. Here's the thing: I think that upwards of 99% of Americans actually agree on this issue. As proof, let me offer the statement that I think would garner that level of support: "Infanticide is wrong." Is that really a controversial statement? (Gosh, I sure hope not).
So why the problem? I think it's the whole definition of the Magic Point where something becomes worthy of the designation "baby" (or "person" or "infant," take your pick - it doesn't really matter.) Termination or prevention of pregnancy after the Magic Point is infanticide and hence morally unacceptable; prior to the Magic Point, it is morally a non-event.
I think this gets to the key about why the abortion debate is so intractable. The defining point of babyhood is ultimately a matter of faith, ideology, laws, or convention; it's not a hard-fast scientifically provable point. Catholicism holds that the Magic Point must occur even prior to conception - that it's wrong to even prevent conception via birth control. Many folks including most fundamentalist Christians believe the Magic Point is at conception, whereas at the other extreme Judaism considers the point of viability to be graduation from medical school or law school. (Easy, easy, folks, that was a joke).
Religions might also define the Magic Point as when a new soul is created. That seems reasonable to me, but of course it begs the question of when that happens. Conception is a pretty good candidate event for this, but it doesn't quite work because identical twins arise post conception, and nobody would argue that they share a common soul.
My own point of view? The Magic Point is, unfortunately, to my thinking, very hard to crisply define.
I'll use a loaf of bread as an analogy. (And remember, it's just an analogy - although the similarities are striking, babies are not loaves of bread.) To make bread you must mix water, flour, yeast, and salt together and bake it in an oven for some period of time (we'll skip kneading and rising for simplicity). The "point of conception" for a loaf of bread is the point at which the ingredients are mixed - after all, if you don't mix them, you don't get bread, and it's at the point that you mix them that you have something that is neither flour nor water nor salt nor yeast but something somehow different. Mixing of the ingredients also has a nice secondary property that it is a very well defined point; you can easily point to "before" and "after".
But is a lump of dough just about to go into the oven fairly called a loaf of bread? That's where I have a hard time with this definition. In my view, it clearly is not a loaf of bread - and I do not think that a fertilized egg or a clump of cells shortly thereafter is a child either. Some very critical and very well defined steps have taken place, but additional critical steps still remain, and unfortunately they are not so neatly defined. In the bread case, if the baking time is 20 minutes, it's pretty clear that I will have bread at 20 minutes. I will probably have something that is still decent bread at 15 minutes. I may have something salvageable at 10 minutes. But at 1 minute it is still just dough. Somewhere between minute 0 and minute 20 the Magic Point is clearly crossed, but darned if I can point to the precise point.
It's certainly not satisfying to me to wave my hands over the gestation process and say "somewhere in there a clump of cells becomes a baby," but the clarity of a specific point in time (sperm fertilizes egg) is also not a satisfying criteria.
I consider myself "pro-choice" and think that the trimester model is a reasonable approximation (and just an approximation!) of the process, but I also recognize that this is just my point of view. I can argue (as I have above) that this is the right way to view the Magic Point, but cannot prove it - it's fundamentally just my point of view. And unless someone figures out how to get broad consensus on the Magic Point, I believe that this is why the abortion debate will not go away, nor will its acrimony decrease, anytime soon.
I think the biggest problem is that, as with many other ideology-based issues, it's one where the principle zealots talk right past each other. Here's the thing: I think that upwards of 99% of Americans actually agree on this issue. As proof, let me offer the statement that I think would garner that level of support: "Infanticide is wrong." Is that really a controversial statement? (Gosh, I sure hope not).
So why the problem? I think it's the whole definition of the Magic Point where something becomes worthy of the designation "baby" (or "person" or "infant," take your pick - it doesn't really matter.) Termination or prevention of pregnancy after the Magic Point is infanticide and hence morally unacceptable; prior to the Magic Point, it is morally a non-event.
I think this gets to the key about why the abortion debate is so intractable. The defining point of babyhood is ultimately a matter of faith, ideology, laws, or convention; it's not a hard-fast scientifically provable point. Catholicism holds that the Magic Point must occur even prior to conception - that it's wrong to even prevent conception via birth control. Many folks including most fundamentalist Christians believe the Magic Point is at conception, whereas at the other extreme Judaism considers the point of viability to be graduation from medical school or law school. (Easy, easy, folks, that was a joke).
Religions might also define the Magic Point as when a new soul is created. That seems reasonable to me, but of course it begs the question of when that happens. Conception is a pretty good candidate event for this, but it doesn't quite work because identical twins arise post conception, and nobody would argue that they share a common soul.
My own point of view? The Magic Point is, unfortunately, to my thinking, very hard to crisply define.
I'll use a loaf of bread as an analogy. (And remember, it's just an analogy - although the similarities are striking, babies are not loaves of bread.) To make bread you must mix water, flour, yeast, and salt together and bake it in an oven for some period of time (we'll skip kneading and rising for simplicity). The "point of conception" for a loaf of bread is the point at which the ingredients are mixed - after all, if you don't mix them, you don't get bread, and it's at the point that you mix them that you have something that is neither flour nor water nor salt nor yeast but something somehow different. Mixing of the ingredients also has a nice secondary property that it is a very well defined point; you can easily point to "before" and "after".
But is a lump of dough just about to go into the oven fairly called a loaf of bread? That's where I have a hard time with this definition. In my view, it clearly is not a loaf of bread - and I do not think that a fertilized egg or a clump of cells shortly thereafter is a child either. Some very critical and very well defined steps have taken place, but additional critical steps still remain, and unfortunately they are not so neatly defined. In the bread case, if the baking time is 20 minutes, it's pretty clear that I will have bread at 20 minutes. I will probably have something that is still decent bread at 15 minutes. I may have something salvageable at 10 minutes. But at 1 minute it is still just dough. Somewhere between minute 0 and minute 20 the Magic Point is clearly crossed, but darned if I can point to the precise point.
It's certainly not satisfying to me to wave my hands over the gestation process and say "somewhere in there a clump of cells becomes a baby," but the clarity of a specific point in time (sperm fertilizes egg) is also not a satisfying criteria.
I consider myself "pro-choice" and think that the trimester model is a reasonable approximation (and just an approximation!) of the process, but I also recognize that this is just my point of view. I can argue (as I have above) that this is the right way to view the Magic Point, but cannot prove it - it's fundamentally just my point of view. And unless someone figures out how to get broad consensus on the Magic Point, I believe that this is why the abortion debate will not go away, nor will its acrimony decrease, anytime soon.
Monday, October 02, 2006
Unintended consequences
Lately I've been thinking a lot about alternative and renewable energy. I think it's an inevitable growth area, the question is not "if" but "when." I assume that there is a finite amount of oil in the ground that is economically recoverable. Some people think that finite amount is 20 years, some think 70 years, some think 150 years. Frankly, I don't know - all I know is that some number of years exist and it will be gone (too expensive) for all practical everyday purposes, reserved for only those applications that can afford the high cost or that simply cannot run on anything else.
I'm not an alarmist in the sense that I don't think the sky is falling over this issue - I think that ingenuity and innovation will find alternative sources of energy and that the laws of economics will make sure that ultimately everything works out, maybe not at a price we like, but ultimately at a price we can live with. Of course, coupled with that statement I also think there is tremendous opportunity in this space and I personally find such opportunities quite intriguing. So do many other people, although I think a lot of them go after opportunities because they are, for example, an alternative to oil, rather than because they are economically competitive with oil today. While I think there has been some good technical thinking that arises from this, it's not a particularly smart approach to creating a sustainable business. (See my earlier post on the need to compete on the merits and the payback period I'm expecting on my own solar panels).
I think that the biggest opportunities in the near term will be around efficiency - getting the same benefit for less energy consumption, and alternative sources will slowly become more and more viable.
So why did I call this post "unintended consequences?" I realized today that there is almost certainly a catch-22 involved in any meaningful gains in efficiency or rise in alternative sources of energy. I confess that this is conjecture, that I can't prove it, but I think there's ample prior examples to suggest that I'm probably right. Anyhow, my hypothesis is that any significant reduction in the cost of energy (whether through efficiency gains, discovery of new oil, practical cold fusion, whatever) will actually lead to an increase in energy consumption, which will offset a significant portion of the savings.
Think that's a nutty proposition? Maybe it is, but consider two examples from other domains:
And that's nothing, because I think people who are more clever than I will come up with applications - not just in computers, but in other energy intensive endeavors - that will be obvious 10 years from now but which my small brain doesn't even comprehend right now. (Hey, how many of us understood the internet in 1990?)
So I think it's an interesting unintended consequence of "solving our energy problem" that we will almost certainly end up consuming more energy as a result. Is that a bad thing? Not at all. My instinct says that it has the distinct aroma of opportunity around it. I'm excited.
Now all we need to do is solve this cold fusion thing...
UPDATE: So I'm not insane here, nor am I original (nor am I surprised that I'm not original). Apparently there is a name for this unintended consequence of efficiency, and it's called Jevon's Paradox. The linked article actually goes into a bit of detail about the prerequisites for its existence as well.
I'm not an alarmist in the sense that I don't think the sky is falling over this issue - I think that ingenuity and innovation will find alternative sources of energy and that the laws of economics will make sure that ultimately everything works out, maybe not at a price we like, but ultimately at a price we can live with. Of course, coupled with that statement I also think there is tremendous opportunity in this space and I personally find such opportunities quite intriguing. So do many other people, although I think a lot of them go after opportunities because they are, for example, an alternative to oil, rather than because they are economically competitive with oil today. While I think there has been some good technical thinking that arises from this, it's not a particularly smart approach to creating a sustainable business. (See my earlier post on the need to compete on the merits and the payback period I'm expecting on my own solar panels).
I think that the biggest opportunities in the near term will be around efficiency - getting the same benefit for less energy consumption, and alternative sources will slowly become more and more viable.
So why did I call this post "unintended consequences?" I realized today that there is almost certainly a catch-22 involved in any meaningful gains in efficiency or rise in alternative sources of energy. I confess that this is conjecture, that I can't prove it, but I think there's ample prior examples to suggest that I'm probably right. Anyhow, my hypothesis is that any significant reduction in the cost of energy (whether through efficiency gains, discovery of new oil, practical cold fusion, whatever) will actually lead to an increase in energy consumption, which will offset a significant portion of the savings.
Think that's a nutty proposition? Maybe it is, but consider two examples from other domains:
- Traffic: When roads are widened from, say, 2 lanes to 4, initially the result is a relief of congestion. But what frequently happens is that now with a wide free-flowing road, housing and employment opportunities that were unattractive down the clogged 2-lane road suddenly becomes attractive down the wide-open 4-lane road. Development ensues, and rapidly the road is again at capacity. This isn't a bad thing or a good thing, it's nothing more than a reflection of people responding to the incentives that we provide. (Economic laws are pretty powerful things!)
- Computer Processing Power and Bandwidth 10 years ago we had sufficient CPU power and bandwidth for what people were doing with their PCs, and we asked what we would do with more. OK, nobody seriously thought we wouldn't find uses for more CPU or bandwidth, but that's not the same as saying that people were demanding it. Nevertheless, more CPU and bandwidth came, and what happened? I think it's best summarized by Youtube.com. The cost of CPU/Bandwidth fell, and people found new must-have uses for it, which would have been prohibitive at the cost of 1995 CPU/bandwidth, but which in 2006 are so cheap that people can use it for the most inane of endeavors. (OK, I enjoy much of what's on Youtube, but you catch my drift.)
And that's nothing, because I think people who are more clever than I will come up with applications - not just in computers, but in other energy intensive endeavors - that will be obvious 10 years from now but which my small brain doesn't even comprehend right now. (Hey, how many of us understood the internet in 1990?)
So I think it's an interesting unintended consequence of "solving our energy problem" that we will almost certainly end up consuming more energy as a result. Is that a bad thing? Not at all. My instinct says that it has the distinct aroma of opportunity around it. I'm excited.
Now all we need to do is solve this cold fusion thing...
UPDATE: So I'm not insane here, nor am I original (nor am I surprised that I'm not original). Apparently there is a name for this unintended consequence of efficiency, and it's called Jevon's Paradox. The linked article actually goes into a bit of detail about the prerequisites for its existence as well.
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