If the slowdown continues, we might end up spending $1500 less per year, per Medicare enrollee, by the year 2021. Multiply that by the number of people on Medicare, and we might just save ourselves $401 billion, in the year 2021 alone. We are getting close to talking about real money now!

In his book, The Power Broker, Robert Caro describes how the central figure in his book, Robert Moses, makes use of the psychology of sunk costs. He would obtain funding for an ambitious new public project – perhaps a park or highway – while dramatically underestimating how much the project would ultimately cost. Using the initial money, he would dig trenches, build foundations, etc. When the money would run out, he had legislators exactly where he wanted them:

Once they had authorized that small initial expenditure and you had spent it, they would not be able to avoid giving you the breast when you asked for it. How could they? If they refused to give you the rest of the money, what they had given you would be wasted, and that would make them look bad in the eyes of the public. And that they said you had misled them, well, they were not supposed to be misled. If they had been misled, that would mean they haven’t investigated the projects thoroughly, and had therefore been derelict in their own duty. The possibilities for a polite but effective form of political blackmail were endless. Once the legislature gave the money to start a project, it would be virtually forced to give you the money to finish it.

The field of behavioral economics did not exist at the time Robert Moses utilized these brilliant tactics. He was a man well ahead of his time.

Two things to notice in this figure. First, healthcare expenses in these large firms still grew pretty quickly in 2008 and 2009, despite the slowdown in the economy. It is only the last two years that of seen a dramatic reduction in spending growth, one that’s hard to tell whether it will last or not. Second, a decent chunk of this reduction is due to the fact that these firms are handing off more of the costs to their employees, a.k.a. patients. Expect more of this cost shifting over the next few years. Employers are desperate to control their healthcare expenses. One way to do that is to ask employees to pay more for their healthcare.

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It was as if she’d French-kissed Saddam Hussein while setting fire to a puppy wrapped in the American flag.

Try to get that image out of your mind!

The $22,000 figure represents overall healthcare costs for this family. You’ll see that $12,000 of this money comes from employers. That money doesn’t directly come out of people’s pockets, but it reduces their take-home pay. So, ultimately we all pay that money one way or another. That is a staggering figure. But even the more direct, out-of-pocket costs are quite high – over $5500 to purchase health insurance, and over $3500 of out-of-pocket costs to pay for healthcare services that are not covered by insurance. That last figure dwarfs the amount of money a typical family spends on gasoline in a year.

More evidence of the importance of overcoming partisanship. Whether you are a liberal or conservative, you have to recognize that Medicare and Medicaid expenditures threaten our fiscal future. We ought to be able to find a way to control these expenditures without throwing poor and unhealthy people under the proverbial bus. That is, if we can still afford buses!

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I respect Thaler a great deal. His thinking and research on how to promote retirement saving is an absolutely brilliant line of work, and perhaps one of the best examples of how behavioral economic discoveries can improve people’s lives. I wish he had been chosen to share the Nobel Prize with Danny Kahneman, when the prize was awarded for Kahneman’s (and Tversky’s) work laying the foundation for behavioral economics. I think Thaler is that important of a figure in the field.

But his enthusiastic embrace of living wills is surprisingly naïve. He should have known better. For starters, Thaler is one of the people who have discovered some of the psychological forces that lead people to make bad decisions. Give someone a complicated choice, with lots of trade-offs, and Thaler could fill the semester explaining how and why that decision is likely to go wrong. Indeed, early developers of the living will went to elaborate lengths to create documents that describe the exact situations patients might encounter in the future. In order to account for all the possible scenarios, some of these forms look more complicated than a wealthy person’s tax returns. No one with a basic understanding of human psychology could think these forms would lead to rational decision-making. No one familiar with the problem of “choice overload” could believe that reflection on so many possible futures, and some impossible choices, would somehow capture people’s true preferences… (Read more and view comments at Forbes)

Many nations have gone to war in pure gaiety of heart, but perhaps the United States were first to force themselves into a war they dreaded, in the hope that the war itself might create the spirit they lacked.

Ouch!

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