How Much is Three Percent?

March 11, 2010
Posted by Jay Livingston

The Freakonomics blog today assures us that emergency room overutilization is a “myth.” All that talk about the uninsured doing what George W. Bush suggested and using the emergency rooms as primary care, that’s just baseless scare tactics. Citing a Slate article, they give the data

E.R. care represents less than 3 percent of healthcare spending, only 12 percent of E.R. visits are non-urgent, and the majority of E.R. patients are insured U.S. citizens, not uninsured, illegal immigrants.

That “majority” might be 99.9% or it might be 50.1%. It turns out that the uninsured account for about 20% of E.R. visits.

My trouble is that I never know if those percents are a lot or a little. Take that 3% of spending. I’m not an economist, and although I haven't done the math, I figure that 3% of $2.3 trillion might still be a significant chunk of change. So just to make sure that 3% was in fact a pittance, a part of the “emergency room myth,” I looked for other Freakonomics articles with a similar number.

• foreclosure rates began a steady rise from 1.7 percent in 2005 to 2.8 percent in 2007. [Three percent of healthcare spending is a little; 2.8% of mortgages is a lot.]
  
• I was surprised at how high the fees were. . . . Even on big-ticket items like airline tickets, the credit-card company collects nearly 3 percent. [Three percent of healthcare spending is a little; 3% of an airline ticket is a lot.]
  
• The homeownership rate in the U.S. increased by 3 percentage points over the past decade — a clear break from the two previous decades of stagnation. [Three percent of healthcare spending is a little; 3% of homeownership is a lot.]

You get the idea. Maybe whether 3% is a lot or a little depends on its political use. I don’t follow the Freaknomics political views closely, but I’m guessing that they don’t like Hugo Chavez down in Venezuela.

opposition voters [those who opposed Chavez] experienced a 5 percent drop in earnings and a 1.5 percent drop in employment rates after their names were released. The authors also conclude that the retaliatory measures may have cost Venezuela up to 3 percent of G.D.P. due to misallocation of workers across jobs.

Chavez “may have” cost his country a whopping 3% of GDP, i.e, $9.4 billion (or possibly less -- note that “up to”). E.R. visits cost the US only a negligible 3% of healthcare spending. And the uninsured are only one-fifth of that, a mere $14 billion.

Whether 3% is a lot or a little seems to depend on your politics and what the issue is.

Unions too are bad, at least for business.

a successful unionization vote significantly decreases the market value of the company even absent changes in organizational performance. Lee and Mas run a policy simulation and conclude that, “ … a policy-induced doubling of unionization would lead to a 4.3 percent decrease in the equity value of all firms at risk of unionization.”

For a paltry increase of 100% in the number of workers getting the benefits of unionization compaines would suffer on overwhelming decrease of 4.3% decrease in equity.

Now about those 20 people in front of you in line at the emergency room. Only four of them (20%) are there because they don’t have insurance. They are part of what Freakonomics calls a “rosier picture.” I wonder if Freakonomics maybe has one or two posts where 20% is pretty big amount, something to worry about, instead of being the equivalent of a bunch of roses in the hospital.