The Argument Against Health-Care Reform

Megan McArdle
Megan McArdle

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Megan McArdle
Staff Writer, The Atlantic
Wednesday, August 26, 2009; 1:00 PM

Megan McArdle, author of the Atlantic Monthly blog Asymmetrical Information, was online Wednesday, Aug. 26 at 1 p.m. ET to discuss why she opposes health-care reform.

A transcript follows.

Megan McArdle is a New York native who, while working at Ground Zero, started writing Live from the WTC, a blog focused on economics, business, and cooking. From 2003 to 2007, she worked in various capacities for The Economist, where she wrote about economics and oversaw the founding of Free Exchange, the magazine's economics blog. She moved to the Atlantic in 2007, and became its business and economics editor this year.

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Megan McArdle: Hey, folks! I'm really looking forward to this chat, and hope you'll pepper me with some interesting questions

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Springfield, Va.: Hello. I'm not sure if the title of this chat provides an accurate description of your views. Are you against health-care reform in its entirety or as its being proposed currently? I have a difficult time believing that people can't see that there are serious flaws in our health-care industry.

Megan McArdle: I think there are serious flaws in our health care industry, but many fewer than most people think. How much pay would you accept in return for, say, foregoing access to expensive new cancer treatments, intensive neonatal interventions for a premature child, expensive cardiac surgeries, and organ transplants? These are some of the main areas where health care reinsurers are seeing massive claim growth--claims that run into the $1 million or $2 million mark.

Very few people would be willing to give those up even for a 10% increase in salary. And if they did give them up, they'd still beg to have them if and when they needed them. So I conclude that this is probably a good use of a whole lot of money.

People want to "cut costs" in the abstract but they don't want to give up options for themselves when they're asked. They may think that society should decide when knee surgeries are warranted, but when it's them, they want to be able to decide yes or no.

There are also the problem of the uninsured, but the number of sick people that currently lack access to the system because of insurance issues is probably somewhere between 1--2% of the system. (That's because uninsured status is heavily tied to being either young and healthy, or an immigrant who probably won't be helped by whatever Obama puts together.) Interestingly, this is less than the 2.6% of people who are now uninsured in Massachusetts. I think there are probably better ways of helping them than gut rehabbing the system.

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Arlington, Va.: In discussions about health care, I've run into two types of people: the people who think it's not "fair" that not everyone is insured, and the people who think it's not "fair" that some have to subsidize care for others, especially if those others aren't taking proper care of themselves. Which camp would you say you fall into?

Megan McArdle: Neither. Or maybe both. It isn't fair that some people don't have insurance. It isn't fair that providing them insurance will require other people to work harder to pay for it, or cut back their consumption.

But I don't see fairness as the primary goal of the system. I think it's more useful to think in terms of maximizing the general health, now and in the future.

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Washington, D.C.: If I understand your posts on your blog, one of your major concerns about health-care reform is that it could have a negative effect on innovation by reducing the financial incentive for innovation. Is that right? Are there other important factors as well?

One of my concerns with the current system is that it would seem to work against labor mobility for people who have chronic health problems or family members with chronic health problems, much in the same way that owning a house in Detroit may keep unemployed people rooted in a place without many available jobs. Folks in these situations may be less likely to leave jobs that aren't suited for them, or to take the risk of starting a business.

Do you think these sorts of things aren't really large enough problems to be factors in the decision to reform the system, or that the positive changes due to reform would likely be outweighed by negatives, such as the effect on innovation?

Megan McArdle: I am not going to pretend that mine is the position with no downsides. I think labor mobility is indeed probably a problem with our health care system, though we don't actually know, because our labor mobility is still higher than most countries with national health care.

But just as you don't actively discourage homeownership because it might make it harder to relocate, we don't necessarily want to switch to a health care system that makes labor mobility better and a lot of other things worse.

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Washington, D.C.: I enjoy your blog, though I generally disagree with you on all issues. (Health care is no exception.) To stay away from all of the questions of personal autonomy and the road to serfdom, etc., etc., I have a question that I have not seen adequately addressed by the libertarian crowd:

Why do we spend twice as much per person on health care as the rest of the industrialized world?

Megan McArdle: There are a lot of reasons. First of all, we pay people more at all levels of the health care system. There's probably some room to force those wages down, but one of the main reasons we do this is that people have other high-salary opportunities.

We also pay more for inputs, because no one player has the bargaining power of a government, which has the power of a single buyer, and also the power of an institution that can, if it so chooses, break your patents.

But the main reason we pay more is that we do more. That's not necessarily a bad bargain. America is the richest large developed country on a purchasing power parity basis. As countries get richer, the percentage of their income that they devote to various goods change. You can think of it like a person. When you're young, food and a car payment may consume almost half your salary. As you get older and your income grows, you probably upgrade your car and food, but eventually, the percentage of income that you devote to them shrinks, because there's a limit to how nice a car you want to buy, and how much food you want to consume.

Health care is a superior good: as we get richer, we want more of it. So it makes sense that America, which is richer than most other countries, also spends more.

There are also, of course, a lot of perverse incentives in our health care system. You can argue that they encourage us to overprovide health care, or overconsume it, but either way, they drive up costs. Those are not confined to the private sector, however. 45% of health spending in the US is now paid for by governments. If there's some reform that could improve our cost structure, we should be able to do it without touching the private system.

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Brooklyn, N.Y.: Ms. McArdle, In America, no one should go broke because they got sick. I wonder how many people consider the co-pay and deductibles of a catastrophic illness, and the number of bankruptcies caused by major illness. It's time to reform insurance and health care, and end obscene profits of big insurance.

Megan McArdle: Actually, health care insurers are not especially profitable.

The bankruptcy problem is a little tricky. It's hard to sort out, in a medical bankruptcy, how much of the problem is the bills, and how much of the problem is income loss. A catastrophic illness like the one you describe very often means significant time off for a wage earner, either because they are ill, or because they need to care for the ill family member. So it's not clear how many bankruptcies we could prevent by changing the payment system. Unless you have massive savings, or no debt, being out of work for a year or more is going to get you into big financial trouble.

It's also not clear how much of this any of the plans on the table will fix. Other countries have co-pays and deductibles. Obama has assured people that their insurance won't change. That probably means that co-pays and deductibles will continue to be a problem for some number of people. How many, I don't know.

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From Michael Fletcher's Chat: I would guess that what Michael Fletcher recently stated reflects what a lot of Post readers at least chat participants feel:

"I've been struck--and surprised--by the intensity of some of the opposition to health care reform. People worry about a government takeover of health care, but don't want cuts in Medicare or Medicaid. The president says continually that the goal of the reform would be to have as many people as possible keep the coverage they now have, but people raise questions about whether political leaders would enroll in the "public option" or the co-ops that may emerge. It is not all very rational, but it does speak to some mixture of deep seated anxiety and political gamesmanship that is out there. The anxiety, I think, comes from the feeling the government has done a helluva lot lately--bank bailouts, auto company bailouts, stimulus--and the net effect has been to probably avert a worse economic crisis, but not improve people's lives. It is not easy selling people on the idea that thinks could be much worse. But that may be the reality, and the push for health care reform appears to be complicated by that sentiment. Meanwhile, people who for ideological or other reasons don't want reform appear to be exploiting that anxiety by raising wild charges --death panels, rationing, etc.--that only make things more complicated. "

Megan McArdle: Well, I want cuts to Medicare; I think Medicare and Medicaid should be rolled into one means-tested program. But I am, I grant you, not typical.

There's a lot of confusion about the death panels. Most proponents of health care reform think of it as referring to the end of life counseling issue. Now, I will say that I recently read the VA's end-of-life booklet, and I did find it rather creepily biased towards choosing to pull the plug. That may just be me, and I have no reason to think that this was intentional, but it does show that it really matters how you frame these issues.

But the core issue about "death panels" is something like the proposed IMAC board, which will assess Medicare treatments. If you look at Britain's NICE, they use something called "quality adjusted life years" to decide whether treatment should be given or withheld. That means that the system is biased against treating old people and very sick people. That is good central allocation of resources, I suppose, but it legitimately worries people--and these are the kinds of worries I hear people expressing at Town Halls.

That said, Sarah Palin's notion that any health care board would deny treatment to Trig was desperately silly--Downs children do just fine in Britain, as far as I can tell. And I think that the American political system won't muster the political will to do this kind of cost control; even if we had some sort of technocratic board, congress would just start overruling it all the time. But of course, that also means that I think cost control through rationalizing care will probably fail. Cost control through wage and price rationing might fare better, but even that's tricky. In many states, the health care unions have won very sweet deals for themselves.

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Ashburn, Va.: Let's pick up on the QA from Washington about our paying double what other countries pay for health care. Your answer was valid. It certainly gave a good explanation why we pay so much. What wasn't asked, or answered, was why the results are so far below what all other industrial nations are getting for the money they spend. For example, why are we ranked around 20th in infant mortality? Is this really the best we can do for all the money we spend?

Megan McArdle: There is some debate as to why we are ranked so low in infant mortality. What we do know is that it doesn't seem to be linked to prenatal care availability, since most states work pretty hard to ensure that mothers get access to it.

One part of it is that we simply do far more heroic--and insanely expensive--interventions on premature babies. That means they're infant deaths, rather than stillbirths, as there is some discretion on how you decide which category an extreme preemie falls into.

Another problem is that African American women, for reasons we do not understand, have much higher rates of premature births, and early preterm births, than white women. Their risk is about double even when you control for all the obvious things: education, income, prenatal care. It's a mystery that probably has some effect on our statistics.

We also have some pretty aggressive fertility treatments. Older mothers, and women who have had some forms of infertility treatments, are much more likely to have both multiple births, and premature births.

But on other measures we do very well. We excel at cancer diagnosis and survival, and one McKinsey study found that in the treatment of common conditions like hypertension and diabetes, we did better than the comparison countries on everything except one category: Britain beat us on diabetes.

Health care outcomes are just tremendously difficult to measure. Differences in diet, exercise levels, heredity, and so forth all contribute, which makes cross-country comparisons devilishly hard to do. America does have a terrible lifestyle. But the health care system isn't going to fix that.

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Philadelphia: I'd like you to defend the blithe point you make about health care innovation -- that increased government involvement inherently reduces innovation. This is a point that you spun out as if it's a truism needing no substantiation. Yet a book could be written on this issue. Surely the security and defense industry, the aerospace industry, the Internet, our current drug development environment are RIFE with examples of public/private partnerships where pure innovation was the outcome. We didn't get to the moon thanks to work done in someone's garage. The Internet was not hatched in Silicon Valley. Wiping out smallpox wasn't a weekend venture for a handful of doctors. In fact, the more I think about it, the more outrageous your claim seems to me. So, have it!

Megan McArdle: I think a lot of people put an excessively narrow definition on innovation. The government is very good at basic research in many areas. But it is also, in most areas, very bad at product development. I'm hard put to think of any area at all, in fact, where government has consistently delivered a better product than the private sector--and before you cry "health care", the systems everyone here least wants to emulate are the ones where the government runs the show.

DARPAnet was invaluable at helping to create the internet. But the internet would not be any use to most of us without the millions of entrepreneurs, existing companies and private citizens who built new ways of delivering content across it, new technologies for speedy delivery, and endless amounts of information for us to browse. To say that "the government invented the internet" is to say that the only important part of the internet is text email through your mainframe.

Defense procurement is, I think, a horrible example to hold up for the possibilities of government directed innovation. We innovate more than any other country in the world, but we also spend a fortune on it. Most people concur that the procurement system is troubled: buying decisions are often made with as much reference to which congressman's district a weapon will be made in, or whose career it advances, as to military usefulness. And it's phenomenally expensive. These things happen in private companies too, but if they happen to often, the companies fail.

A couple other things to note: military procurement is a competitive equilibrium, where we are trying to stay ahead of others. There's no similar competitive fire to health care improvement--anything we invent will end up everywhere else in short order. So I think that the prospects for healthcare are even dimmer than in military development.

And finally, innovation is not just "I discovered a new protein to target!" It's incremental improvements in everything from catheters to hospital beds, cost shavings, and yes, taking an interesting target and finding a drug that can be cost-effectively manufactured at large scale, works on your disease, and doesn't kill your patients. The government is not good at that kind of distributed incremental improvement. It's good at writing checks for huge sums.

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Raleigh, N.C.: "That said, Sarah Palin's notion that any health care board would deny treatment to Trig was desperately silly--Downs children do just fine in Britain, as far as I can tell."

It wasn't 'desperately silly' it was cynically dishonest, extremely disingenuous, and meant to derail the honest discussion.

Megan McArdle: I try to always assume the best of people I disagree with. It saves wear and tear on my blood vessels, and a lot of personal nastiness.

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We excel at cancer diagnosis and survival: This is misleading. Of course we do better since a lot of diagnosis and treatment is good for the bottom line. But the correct statistic is mortality rate. Here are the figures:

Per 1000 people the US has 321.9, Australia 298.9, Canada 296.4, France 286.1, Austria 280, Sweden 268.2 Finland 255.4, and the UK 253.5. (OCED)

Megan McArdle: Actually, the correct metric is survival rate. Mortality only tells you that we may have more cancer. And on survival, we tend to do well, though it depends on the cancer.

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Alexandria, Va.: When I was growing up (late 1970s-early 1980s) and both of my parents worked, I remember that my dad's insurance would pick up 90% of any medical costs, and then the remaining 10% would then be submitted to my Mom's employer which would pay 90% of that. Leaving the family to pay about 1% of health costs.

So, since then, and as many people are paying more into their plans and getting less out - where is the money going?

Megan McArdle: It's going to treatments. In the 1950s, state of the art treatment for a heart attack was bed rest and pain killers. Now we have stents, coronary bypasses, and all sorts of other neat new treatments that restore years of life and activity. Organ transplants were rare--we do more than other countries. We've made massive, and expensive strides in cancer, neonatal care, and all sorts of other areas. And yes, we've got Prilosec. But speaking as someone whose gastritis was painful enough to suggest stomach cancer, thank God for Prilosec. In the 1970s, asthmatic kids got Intal inhalers and a lot of rest. Now they run marathons.

This is all phenomenally expensive. But since most people don't use most treatments, it seems like we're not getting much for our money. But option value is real value--and when you ask people which of those options they'd be willing to give up, the answer is "not many".

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Ashland, Mo.: Shouldn't Congress at least prohibit insurance companies from being corporations and, instead, require them to be mutual companies owned by the policyholders?

Megan McArdle: I don't really see how Blue Cross/Blue Shield is going to revolutionize our health care system. Lots of health insurance companies are non-profit, but health insurance profits are a very, very small percentage of overall medical spending. Mutual insurers have the same incentive as other companies to control costs: clients who don't want to pay too much, and shareholders or policyholders who want a dividend.

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Anonymous: Dear Megan,

I worked in the insurance industry for several years.

Are you aware of the 'profiling' that is done in the health insurance industry to determine which customers are least likely to be able to defend themselves or seek legal redress when their claim is denied or premiums increased unfairly?

Do you know much about the internal workings of the industry, or only what is known to the public in general?

Have you or anyone you know ever had medical coverage denied for any reason?

Megan McArdle: The answer is yes I have had a loved one denied treatment coverage, and also had my own treatments disallowed. I've also been uninsured for a multi-year stretch, before which I was underinsured. I have a couple of conditions that are fairly expensive to treat, and I paid for them out of a fairly small paycheck. I was then, if anything, much more militantly against a national health insurance scheme than I am now.

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Houston: While I have never read your blog, and it appears that we may disagree on many things, you seem very very well informed regarding the issue of health care. I wish that opponents of the health care plans were as informed as you.

That said, based on how knowledgeable you seem, what impact does the use of our current health care system by illegal immigrants really have? Is it greater or lesser than the impact by those that simply do not have enough money to afford care and use ERs as their primary care physician?

Thank you.

Megan McArdle: I tend to talk about immigrants as a group, rather than illegal immigrants, because what you see happening in Europe is that giving immigrants access to the system increases the pressure to keep them out of the country entirely. Since I don't think that most immigrants would be better off back in Chiapas or Shanghai, this does not seem welfare enhancing.

When you look specifically at illegal immigrants, it's really hard to tell, because they don't advertise their status. I've heard 25% of emergency room visits were illegal immigrants, but the study wasn't that impressive.

But here are a few statistics:

Since the late 1980s, when we began collecting statistics on this, the percentage of native born Americans who are insured has dropped from roughly 87% to roughly 85%--you can get numbers that are more or less dramatic depending on your choice of start and end year, but in no case is the drop as much as 5 percentage points.

When Massachussetts enacted its plan, the percentage of uninsured dropped from over 11% to bout 2.5%. The cost of caring for the uninsured, however, fell by less than half. I have to believe a lot of that is driven by immigrants who aren't in the tax system.

About 40% of the long-term uninsured are Latino. Remember, the dramatic 47 million figure you hear includes people who are uninsured for as little as a day--my fiancé is uninsured by this metric, even though he has been using his quite good health insurance quite a bit recently. The chronically uninsured are about 18 million. And as I say, almost half are Hispanic.

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Philadelphia again: "The government is not good at that kind of distributed incremental improvement. It's good at writing checks for huge sums."

Megan, I agree with you that government-exclusive anything is bad for innovation. But your points don't necessarily counter my original claim -- that private-public partnership can produce innovation. You're right about DARPAnet, and that combination of slow, persistent bureaucratic development of something that entrepreneurs can feed on and re-invent for commercialization is a positive example for health care/pharma innovation. I don't see where current reform will limit the role of industry. Industry will adjust just fine around it, will let government do some of the heavy lifting around start up, and then will properly commercialize and profit from the end product they create.

Megan McArdle: I should make clear that I am opposed to the existing plans for different reasons than I am opposed to the project of national health insurance. The reason I focus on the larger question is that virtually all of the people advocating for the current reforms are pretty open about the fact that they view them as a big step down the slippery slope.

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Madison, Wis.: Megan, why won't the feds allow us to buy insurance across state lines? It would dramatically cut costs for Americans while costing the deeply indebted federal government nothing.

Other than the fact that it would drastically reduce the power of special interest lobbying groups and corrupt state legislatures, is there any argument that can be coherently made against such a reform?

Megan McArdle: We should allow competition, but this is as much a constitutional issue as a policy one. I don't know if the federal government *can* abrogate the right of states to regulate their insurance industries. This is actually a major open question about the public option. If it has to comply with state regulations, it will fail.

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but the number of sick people that currently lack access to the system because of insurance issues is probably somewhere between 1--2% of the system.: I suppose by "sick" you mean people denied health insurance because of pre-existing conditions. But then you go on to compare that with ALL uninsured in MA for any reason. Talk about apples and oranges!! There are over 15% of the American people who do not have health insurance (for any reason). Compare that with MA's 2% - 3%.

Megan McArdle: Right, but I don't find the plight of people who don't have health insurance, and also don't need health care, very interesting. I am interested in whether sick people are not getting treatment that could help them. And in whether the programs being proposed will change that. In the case of young people, it will actually help very few, because most don't need expensive treatment. In the case of immigrants, it will help very few, because politically, helping them is not very popular.

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Anonymous: You said that medical innovation will be wiped out if we have a type of national health care, because European drug companies get 80% of their revenue from Americans. Where did you get this statistic?

Megan McArdle: It wasn't a statistic--it was a hypothetical.

However, whenever I have been able to find pharma financial statements that break down their profits by region, the lion's share always comes from the US.

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The cost of caring for the uninsured, however, fell by less than half. : Of course, because now they were actually getting health care, not dying.

Megan McArdle: You don't understand. I mean, the cost of caring for people who are *still uninsured*. The people who got insurance are now counted as insured. This is the cost to Massachussetts hospitals of caring for people who still don't have insurance, a cost for which they are partially reimbursed by the state. The state projected that these costs would fall much more than they actually did, which is one of the reasons that costs are rising much more quickly than they anticipated.

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Princeton, N.J.: I am a 71 year old retired mathematician. You do not understand survival rates. Take prostate cancer. In the US, we regularly give PSA tests while in Europe they do not. Thus we find a lot of cancer and we treat it frequently in cases where the patient would be fine. Thus we have a lot of survivors. In Europe, the survivors who are not found do not count so their rate is lower. That is why mortality rate is better. We like to use survival rate, because doctors only make money if they treat.

Megan McArdle: I'm aware of the problem, but there are studies that control for it, either by looking at overall cancer mortality rates, where we tend to do well on some types of cancer, or by looking at the stage of the cancer.

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In the case of young people, it will actually help very few, : I think you need to retake Insurance 101. If you only insure people who are going to use it, that is not insurance.

Megan McArdle: Right, but then we're just arguing about who to tax to pay for those who need care and can't now get it. Young uninsured people are a plausible group, but most of them aren't actually better off.

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Washington, D.C.: You want to means-test Medicare? That will go over well with the seniors!

Megan McArdle: You seem to be under the mistaken impression that I have a workable political program. I'm a libertarian. My political ideas are always unpopular.

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Back to costs: Thanks for the answer -- but I was hoping for numbers.

Also, not all industrialized nations have single payer systems; some of them have wealthier and older populations than we do; and even if we out-innovate the rest of the world, they get the benefits of those innovations. Why would we be the only ones paying for it?

Not to be snarky, but I do not find your argument plausible. I think Atul Gawande diagnosed the problem very well, and I have yet to see anyone propose a proper solution.

Now, finally, a question: If you might support a reform on the 45% of health care that is paid by the government, do you support medical effectiveness studies for Medicare?

Megan McArdle: I do, though I don't think they are the silver bullet some imagine. If you read about the development of the guidelines for salt consumption in hypertension, you see how many studies were ignored by people who had gotten very vested in the notion that low salt diets were a magnificent cure. In fact, the benefits look at best very small for people who already have hypertension, and basically nonexistent for others.

Medical science is a very difficult art. Studies are often, even usually, equivocal, controls and blinds are hard to do, and patients don't comply even when you get a good treatment regimen. Which ultimately is why the system has so many problems: there are no clear, easy answers to almost any question you can ask.

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Takoma Park, Md.:: So how's the wedding planning going? As someone who also planned a lower-budget wedding, I sympathize and enjoy following (and have commented a few times on your blog).

Megan McArdle: Ah, a happy question!

I basically decided to try to get as much of the wedding planning done in August as we could, since August is a slow news month, and I am shaping up to have a super-busy fall. We've got a date, a location (with in-house catering), a dress, and ceremony musicians, and all the important people have been recruited. So, it's going well.

It was touch and go there for a while, since we don't have a lavish budget, and I almost gave up several times and decided to elope. But Peter pointed out that this is the only time in our lives when we'll be able to get all our friends and family in one room. That made me much more comfortable about the money we were spending (way more than we wanted or planned, like virtually every other couple who plans a wedding). It felt very self-absorbed and silly, but now I realize that I'm really paying to have everyone I love around me at a day I hope will be one of the more important moments of my life.

And now that the major decisions are out of the way, all I have to do is fun shopping-type activities that aren't so expensive: flowers, bridesmaids dresses, invitations, and of course, making up the music list for our reception, since we're crowd-sourcing the DJing using a laptop and iTunes DJ. With nine months to go, there's plenty of time to do that stuff at a relaxed pace. So for the first time, I'm really starting to look forward to the wedding, rather than dread the amount of stuff I have left to do.

Thanks so much for the question, and good luck on your wedding! Just figure out the things you really want out of the wedding, and you'll get much happier about the whole process.

Also, thanks to everyone else who participated. This has been a really engaging whirlwind, and I enjoyed it tremendously. I hope a few others did as well.

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