The Grim Economics of Death

40% of Medicare spending is in the last month of life. There is a better way.

Economics is called the dismal science because it is precisely the right tool to answer some of society’s most depressing problems. In today’s post, we’re going to look at the economics of dying, have an honest conversation about where we spend our health care dollars when addressing terminal illness, and look at the opportunity cost of end-of-life decisions. If you read far enough, you might just learn how you can change the world.

For starters, let’s address a few truths about health care spending at end-of-life.

First, and foremost, we are all going to die regardless of the quality of care we get. Death is a heartbreaking reality of life that cannot be avoided.

According to the Department of Health and Human Services, 40% of Medicare dollars are spent in the last month of life. Most of this spending is dedicated to curative therapies, in an attempt to “fix” the health problem that, ultimately, causes death. However, there is another option.

Palliative care, sometimes called hospice, means easing symptoms of illness as opposed to attempt to cure it.  Palliative therapies typically provide people comfort rather than aggressive therapies when faced with end of life illness. There are, literally hundreds of studies that demonstrate that this kind of care not only improves the quality of life when facing terminal disease, but it actually extends the life of persons who receive when compared to those who receive aggressive therapies. Furthermore, palliative care costs about 50% less than curative therapies for end of life illnesses, according to just about every blind study of the subject that was conducted in the past 8-10 years. In short, Americans spend a massive amount of money when diagnosed with terminal illnesses in what will, ultimately, be a futile attempt to live longer, and often in more painful circumstances, because we choose expensive and aggressive curative therapies instead of palliative care.

Please, don’t get me wrong here. I’m not looking to unplug anyone’s loved one from the respirator. All I’m saying is that there comes a time in everyone’s life when out of heartbreak and desperation we make the choice to suffer more, cut our lives short, and leave our families buried in medical debt when there is a better option available to most of us -but it isn’t necessarily the obvious one.

Perhaps it is time that we consider our end of life choices more carefully. Do we really want to continue spending large sums of money so that we can have, on average, shorter, more miserable lives? Why don’t doctors inform us about the reality of these choices?

I think part of the problem is that we, as a society, tend to believe that the more aggressive the health care, the better are our chances for survival. Furthermore, hospitals profit more from providing aggressive care, and doctors are positively recognized for their ability to perform more of these aggressive procedures, and not necessarily measured by the quality of life of their patents. The perceived leaders of the health care system have public reputation and profit incentives to try and cure you, even if statistically that is not very likely to happen and your suffering actually increases.

For this reason, Freakonomics author Stephen Dubner has proposed that we change the incentives when terminal illness is diagnosed, suggesting that insurance companies offer these patients a financial offer: to split the difference between their curative therapy cost and palliative care, opting to pay them a share of monies saved so that they could take a final vacation with the family, or in some other way enjoy their last days with additional financial resources to spend as they see fit, rather then undergo expensive curative treatment that statistically will fail and cut their already precious life short. This would appear to be a good way to extend life, on average, and enjoy that life more before it is gone.

I would like to suggest another option, one that may not be for everyone facing a terminal diagnosis: rather than pursue curative therapies or split the difference with your insurer, why not do something extraordinary for society, something dangerous but effective for social good. For example, why not volunteer to drive an ambulance in Syria to rescue children and women injured in the fighting?  Or, perhaps volunteer to do violence intervention and training on the south side of Chicago? Anyone care to volunteer to de-mine former conflict zones?  You’ll likely save some lives and do tremendous good. These are certainly worthwhile pursuits, often not pursued by those who expect and desire to live for a long time.  However, if you knew you had precious little time left, then what do you have to lose?

Risky and valuable behavior sometimes go hand in hand, and if humanitarian in nature, you can use what little time you have left to leave behind a world much better than you found it. You also leave behind a legacy of selfless service, right up to the end. It may sound crazy, but why not leave behind an amazing legacy of love, choosing to spend your final days saving those that the world forgets?

Of course, there is no judgement or easy answers here. Like most humanitarian questions, there is no clear calculus to make these decisions. However, with a better understanding of what really happens at the end of life, and better options for how we can spend those precious days, we can be better prepared to make the right choices for our families.

Why Start Ups Need to Understand Consumer Surplus

Many start-ups fail because they can’t generate sufficient consumer surplus. What the heck is it anyway?

When someone says, “consumer surplus”, I strongly doubt that the first thing that comes into your mind is a burning urgency to make your customers happy.  And yet, it should.

Julesdupuit
My man Jules

Consumer surplus was pioneered by a French engineer, Jules Dupuit, in the 1840s.  He proposed the idea that the difference between what you would be willing to pay for something, and what you actually pay for it, is a benefit to you the consumer.  This is a surplus in value, that makes you happier.  He called it, consumer surplus.  For example, you may be willing to pay a lot more for that cool phone in your pocket than you really paid for it. I’m hoping you didn’t steal it, that would be illegal surplus, but I digress.

When you create a new company providing a product or service, you have to think about consumer surplus.  If your offering does not generate a massive amount of consumer surplus, beyond other substitutes and competitors in the market, then no one will buy your new stuff and your company will fail.

However, if you can aggressively price your service where people feel like they’re getting a steal, then you can create a position for yourself and actually sell something (assuming you’re even charging money to the customer).  Of course, Mark Zuckerberg decided to give Facebook away for free, thus creating massive consumer surplus for the billions of people using his service and not paying one thin dime for it.

However, Zuckerberg also creates a massive consumer surplus in another market: advertising.  Before Facebook, it was pretty tough to find customers who fit your companies demographic and consumer profile.  Most companies did mass mailings to zip codes where they suspected most of the readers had the most affinity for their product/service, or took out massive media campaigns most people saw and ignored since it didn’t apply to them.  This advertising was like firing a shotgun into a crowd and hoping you got your target.  Not only that, it was very expensive to reach everyone, and that was your only option.  For advertisers, Facebook created the opportunity to identify your most likely customers with pinpoint precision, and then only buy the marketing that specifically focused on them.  In this way, advertisers were able to save money over traditional campaigns, and get better, measurable results on their advertising (read: boat loads of additional consumer surplus in the advertising market).

So, now that you understand that to grow your business and sell a ton of cool stuff, you need to find ways to increase consumer surplus for your customers as much as you can.  Now, look over at your business partner and say, “hey buddy, lets start to brainstorm how we can create more consumer surplus.” If he looks at you funny, please share this post.  Well, even if he doesn’t, you probably should share it anyway.  It is a nerdy/cool article.