Interpreting the results of the Oregon Medicaid experiment

by on June 9, 2015 at 12:52 am in Data Source, Economics, Medicine | Permalink

There is a new and probably very important paper by Amy Finkelstein, Nathaniel Hendren, and Erzo F.P. Luttmer:

We develop and implement a set of frameworks for valuing Medicaid and apply them to welfare analysis of the Oregon Health Insurance Experiment, a Medicaid expansion that occurred via random assignment. Our baseline estimates of the welfare benefit to recipients from Medicaid per dollar of government spending range from about $0.2 to $0.4, depending on the framework, with a relatively robust lower bound of about $0.15. At least two-fifths – and as much as four-fifths – of the value of Medicaid comes from a transfer component, as opposed to its ability to move resources across states of the world. In addition, we estimate that Medicaid generates a substantial transfer to non-recipients of about $0.6 per dollar of government spending.

An implication of this is that the poor would be better off getting direct cash transfers: “Our welfare estimates suggest that if (counterfactually) Medicaid recipients had to pay the government’s cost of their Medicaid, they would not be willing to do so.”

And perhaps this sentence could use the “rooftops treatment”:

It is a striking finding that Medicaid transfers to non-recipients are large relative to the benefits to recipients; depending on which welfare approach is used, transfers to non-recipients are between one-and-a-half and three times the size of benefits to recipients.

Or this:

Across a variety of alternative specifications, we consistently find that Medicaid’s value to recipients is lower than the government’s costs of the program, and usually substantially below. This stands in contrast to the current approach used by the Congressional Budget Office to value Medicaid at its cost. It is, however, not inconsistent with the few other attempts we know of to formally estimate a value for Medicaid; these are based on using choices to reveal ex-ante willingness to pay, and tend to find estimates (albeit for different populations) in the range of 0.3 to 0.5.

Might the program in fact be a bad idea?

1 Ray Lopez June 9, 2015 at 1:11 am

“An implication of this is that the poor would be better off getting direct cash transfer” – since the 1980s I’ve heard the argument that it’s probably better to give the poor money by which the could buy cigarettes or a bottle of booze rather than trying to help them with free cheese, free healthcare, free legal services, or free housing (at the margin of course, since obviously you don’t want them to be hungry and homeless). Probably some truth to this. In DC I got a lot of flack from my friends when I once gave an alcoholic money but only if he promised me he would buy booze (which he promptly did, being just outside a liquor store) but there’s some logic to my proposal: quality of life (from their viewpoint) trumps quantity. Not sure however about how you measure any externalities to society from this “give money to the poor and let them do as they want” approach. The paper probably did not measure such externalities, but as we all know what you can’t measure doesn’t count, unfortunately.

2 Ray Lopez June 9, 2015 at 1:16 am

@myself – btw, this was during the “Mitch Synder” era in DC, he for you younger folk was a homeless advocate zealot. Unfortunately he was or became mentally unstable and in his 40s [update: oh, he was 57 when he died, my priors showing], during the usual mid-life crisis years, took his own life. http://en.wikipedia.org/wiki/Mitch_Snyder

3 SimonH2 June 9, 2015 at 4:59 am

@ray lopez – Wikipedia said he was 47 when he died so I think you were RFT

4 Jan June 9, 2015 at 10:53 am

Man, what’s wrong with your friends?

5 Yancey Ward June 9, 2015 at 11:36 am

Once again, you are my absolute favorite internet troll!

6 prior_approval June 9, 2015 at 1:59 pm

Yep, Jan must be trolling. Anyone who disagrees with a web site’s narrative must be a troll, after all, regradless of the facts and links they can provide.

7 The Original D June 9, 2015 at 2:28 pm

A leopard doesn’t change its spots.

8 Floccina June 9, 2015 at 3:45 pm

It is also true that even fairly low earners could often afford health insurance if they squeeze other spending to the absolute minimum to survive. Polenta, bean and rice diet in a tiny room and a minimum of Good Will purchased clothing. We do not want our fellow citizens to live like that that, but they could and would if health insurance was very valuable to them. Since there is so much housing already built, if the bottom 20% of earners decided to spend most of the their income on healthcare rents would surely fall.

9 Agra Brum June 9, 2015 at 4:52 pm

Left unsaid on this counterfactual is if there is any political will or desire to implement cash transfers to the poor in lieu of social services.
The alternative is not cash or subsidized medical care, the actual alternative (in the real world) is nothing or subsidized medical care…
For some reason I don’t think those who rail against the ‘moochers’ want to start giving substantial cash transfers.

10 Marc Brazeau June 10, 2015 at 9:53 am

#Bullseye. Until we are ready to start talking about a universal basic income, the cash transfers argument is a non-starter. In fact conservatives are moving to limit what the poor can do with current transfers like the SNAP program. By trying to exclude things like steak and seafood, they are trying to make the benefit even less like cash. They would prefer that it stay the taxpayers money until the retailers get it, at which point it becomes fully fungible.

11 Kevin June 9, 2015 at 1:30 am

Not surprising.

Is there any government program the beneficiary of which would not orefer their share of the cash spent to the program’s services? Perhaps public good like defense, law and order, public health, roads and infrastructure… But transfer payments by definition must provide lower benefits than the cash spent as there is overhead which lowers the value and recipients coukd reallocate the money to more desired goods or services. (I guess I am ruling out any fantasy efficiencies from single payer…)

12 TMC June 9, 2015 at 3:37 am

Roads are paid for by the gas tax. You make that decision whether you value the money or service whenever you fill up.

It is probably the 3x value that is interesting here.

13 simeon June 9, 2015 at 6:40 am

Only 30% of the cost of roads is from the gas tax. The rest is from property tax, bonding, and other general tax rev.

14 Floccina June 9, 2015 at 3:50 pm

If so they should raise the gasoline taxes by 350%.

Do you have links for that, I have never been able to get a straight answer of that. Some people claim we spend too much of the gas tax on other things and then some agree with your statement.

15 Cooper June 9, 2015 at 5:31 pm

http://taxfoundation.org/article/gasoline-taxes-and-user-fees-pay-only-half-state-local-road-spending

Looks like we need to roughly double fuel taxes (add another 40-50 cents/gallon to the gas tax) to pay for the full cost of road maintenance. I fully support this. Anyone object?

16 Floccina June 10, 2015 at 10:05 am

@Cooper Thanks.
I support gas taxes being raised to cover all road and bridge maintenance, I think few could object to that. Even doubled, the tax is still not much and some of it would be paid for by petroleum producers.

One thing though, at your link it only says local road spending what about federal gas tax and spending.

Here is why I am still not sure.

States Siphon Gas Tax for Other Uses

Nationwide in 2011, highway user fees and user taxes made up just 50.4 percent of state and local expenses on roads. State and local governments spent $153.0 billion on highway, road, and street expenses but raised only $77.1 billion in user fees and user taxes ($12.7 billion in tolls and user fees, $41.2 billion in fuel taxes, and $23.2 billion in vehicle license taxes).[3] The rest was funded by $30 billion in general state and local revenues and $46 billion in federal aid (approximately $28 billion derived from the federal gasoline tax and $18 billion from general federal revenues or deficit financed).

Both articles yours and mine use words that make me think they are avoiding telling the whole truth. I am still a bit confused.

17 dearieme June 9, 2015 at 6:18 am

Kevin’s right you know.

18 Mark June 9, 2015 at 9:39 am

In other news, when I buy a chicken at a supermarket, only A FRACTION of that money ultimately goes to the supermarket.

*pwoosh* mind blown.

19 Eric Rasmusen June 9, 2015 at 12:04 pm

Kevin is right– this is not surprising at all. Medicaid can’t be justified as a transfer program, and I don’t think it is, really, even as a transfer program for merit goods. It’s not that we think a poor person would be better off with a $100,000 operation than with $100,000 cash. Rather, people hate the thought of someone dying now instead of in a year just because the $100,000 isn’t spent. I think people would be just as upset if the person took the $100,000, gave it to charity or his family, and died immediately.
Still, I wish we could offer the poor person a choice: you can have the $100,000 operation, or $10,000 cash. It’s a little like what’s done with school choice vouchers in Indiana: the poor person can have a $10,000 year of public school for their child, or $5,000 to use at a private school. The policy improves welfare and reduces the tax burden simultaneously.

20 Floccina June 9, 2015 at 3:57 pm

@Eric

Especially if it is correct that most expensive healthcare is of little value. See here.

What I think would be good would be for medicaid to go with very strict evidence based medicine and not pay for any care that have not show large net benefit. This might eliminate most expensive care and pretty cheap.

21 Jan June 9, 2015 at 4:28 pm

This would be a great idea for Medicare, actually. Medicare covers almost anything–it is ridiculous. Incorporate cost effectiveness into the assessment for coverage as well. I wouldn’t set the threshold too high, however. Just a little bit trimming the most egregious low-value stuff could save a decent amount of money.

22 Jan June 9, 2015 at 4:25 pm

I think we should do this with Medicare. We make it “cost-saving” by offering 65 year olds a bit less than the anticipated Medicare spending on them in their lifetimes, if they choose the cash option.

23 adam June 9, 2015 at 2:09 pm

“But transfer payments by definition must provide lower benefits than the cash spent as there is overhead which lowers the value and recipients coukd reallocate the money to more desired goods or services.”

It’s possible the Government could get lower prices for the same goods/services than the beneficiaries could, thereby offsetting any overhead costs. Also, Medicaid doesn’t just provide goods/services in the way that most transfer programs do. It’s a kind of insurance, and that insurance is a benefit even if the beneficiary doesn’t actually receive any medical services.

24 Greg June 10, 2015 at 11:45 pm

Isn’t this whole line of argumentation ignoring the possibility of consumer surplus? I can’t think of a better example than roads myself. I’m pretty sure I’ve gotten more benefit from the road system than I’ve ever paid in.

I’m not sure that consumer surplus changes the math for Medicare in a meaningful way. Just thought I should mention it.

25 Yoav June 11, 2015 at 5:01 am

Of course.

Medicine in particular is a very good example, just not in the US.
In countries with Universal medical insurance, the goverment can act as single buyer and reduce the prices a lot,
and make better incentives (Preventive medicine for example).

26 Crassus June 9, 2015 at 2:00 am

> Our welfare estimates suggest that
> if (counterfactually) Medicaid recipients
> had to pay the government’s cost of
> their Medicaid, they would not be willing
> to do so.
Would most Medicare recipients would barter their longevity to pay bills for TVs, iPhones, and Cheez-Its? I’m prepared to believe that. Many who must rely on Medicaid do so precisely because they are bad at balancing future wellbeing against present comfort in a wise way.

In An Economist Goes to Lunch, Cowen recognizes that Mexican food in America is very unhealthy because lower class Mexicans do not yet know how to cope with an environment that can offer them security and longevity. In the slums of Mexico, life expectancies are short and finances precarious. It may be reasonable in such places for a family to spend all the money right away rather than to hide it where it might be stolen. Therefore, let’s put money in a protected Medicaid account for poor. When someone grandpa Rodriguez is saved when he receives needed heart surgery, the Rodriguezes may change their culture. They will create savings accounts for their own families.

27 ChrisA June 9, 2015 at 6:15 am

“Mexican food in America is very unhealthy because lower class Mexicans do not yet know how to cope with an environment that can offer them security and longevity” – except that Hispanics actually have longer life expectancy than non-hispanics in America;
http://newamericamedia.org/2012/12/latino-life-expectancy-exploring-the-hispanic-paradox.php

28 Lonely Libertarian June 9, 2015 at 8:57 am

And they spend less on health care than whites and blacks – over 25% of Hispanics spend NOTHING on health care in any given year and the MEDIAN spend for those WITH any health care expense is just over $600 a year – or $50 a month – 62% less than Whites and 31% less than Blacks. Hispanics [and Asians] pay huge penalties when they buy health insurance to cover much more expensive groups

29 Jan June 9, 2015 at 5:29 pm

You know this is mainly due to lack of access to care and much lower insurance coverage, right? It’s not because Latinos are just a super race of exceptionally healthy people.

30 prognostication June 9, 2015 at 9:02 am

This isn’t true of their children raised in the U.S., only of the generation that actually does the immigrating.

31 Floccina June 9, 2015 at 3:59 pm

Do you have a link?

32 prognostication June 10, 2015 at 9:02 am

Acculturation and Latino Health in the United States: A Review of the Literature and its Sociopolitical Context

33 prognostication June 10, 2015 at 9:02 am

(gated)

34 dearieme June 9, 2015 at 6:21 am

“they are bad at balancing future wellbeing against present comfort in a wise way”: or they differ from Crassus in their estimation of what is wise.

“let’s put money in a protected Medicaid account for poor”: protected from whom? The government will steal it in the end.

35 MOFO. June 9, 2015 at 9:13 am

“or they differ from Crassus in their estimation of what is wise.”

Nope, Top. Men. Have decided what is wise and what is unwise.

36 Yancey Ward June 9, 2015 at 11:43 am

Would most Medicare recipients would barter their longevity to pay bills for TVs, iPhones, and Cheez-Its? I’m prepared to believe that.

However, here is the thing you are overlooking- Medicaid isn’t really improving their longevity all that much. One can argue that this is because the program is badly run or badly funded, and needs improvements, but then one can also argue that it wouldn’t matter anyway (as you seem to suspect with the end of that quote).

37 albatross June 9, 2015 at 4:25 pm

The existence of cigarettes, motorcycles, and bacon double cheeseburgers all argue that people are routinely willing to barter their longevity for current quality of life. It would be pretty shocking if that *weren’t* true for medical care.

38 Crassus June 9, 2015 at 2:10 am

“Our welfare estimates suggest that if (counterfactually) Medicaid recipients had to pay the government’s cost of their Medicaid, they would not be willing to do so.”

Would most Medicare recipients would barter their longevity to pay bills for TVs, iPhones, and Cheez-Its? I’m prepared to believe that. Many who must rely on Medicaid do so precisely because they are bad at balancing future wellbeing against present comfort in a wise way.

In An Economist Goes to Lunch, Cowen recognizes that Mexican food in America is very unhealthy because lower class Mexicans do not yet know how to cope with an environment that can offer them security and longevity. In the slums of Mexico, life expectancies are short and finances precarious. It may be reasonable in such places for a family to spend all the money right away rather than to hide it where it might be stolen. Therefore, let’s put money in a protected Medicaid account for poor. When grandpa Rodriguez is saved by heart surgery paid for by Medicaid, the Rodriguezes may change their culture. They may create a savings accounts for their own family.

The discounts that come from bulk purchasing in Medicaid more than make up for Medicaid administration costs. And let’s not forget: exorbitant à la carte healthcare in America comes with its own added administration costs.

39 Ray Lopez June 9, 2015 at 2:26 am

@Crassus – yes, you are right: “Would most Medicare recipients would barter their longevity to pay bills for TVs, iPhones, and Cheez-Its? I’m prepared to believe that.”

Here in the Philippines I had a girl whose teeth I fixed with braces say: “for the money you spent I could have bought an iPhone”. Later she thanked me for the dental work, not because it straightened her teeth for the future, but rather she liked the “nerdy look” (she was a beauty contestant). True, true Third World tale.

40 prior_approval June 9, 2015 at 2:34 am

‘An implication of this is that the poor would be better off getting direct cash transfers’

Well, if one is a talented satirist, that just might be the sort of modest implication one would highlight.

What would actually be better is the poor in the U.S. getting medical care in the same fashion that pretty much everyone does in countries like France, Denmark, Germany (all three use different health care funding models – and all are significantly cheaper in providing health care than the U.S.).

2014 data found here – http://www.commonwealthfund.org/~/media/files/publications/fund-report/2015/jan/1802_mossialos_intl_profiles_2014_v7.pdf?la=en

Table 3 really shows how much help cash transfers would really be for Americans, though not only for the poor (unless, of course, one thinks that more than a third of Americans are poor) –

‘Experienced access barrier because of cost in past year – France – 18% Germany – 15% U.S. – 37%’

41 FC June 9, 2015 at 4:27 am

It’s only a small part of the cost disease but I find the contrast between the West European and USA methods of recruiting doctors into the public service, broadly defined, to be interesting. In Europe medical school is cheap and selective but doctors are paid less than their American colleagues. In America medical school is expensive and after licensing the government offers some relief from the loans for various types of public service.

42 Jan June 9, 2015 at 7:04 am

Yes, but mostly doctors in the US just make a shitload of money and pay off their loans themselves. Also, our ratio of specialists to GPs is higher in the US than other countries. They typically make much, much more than primary care docs.

43 FC June 9, 2015 at 7:32 pm

GPs have been regulated out of existence in the USA and replaced with a variety of ‘primary care’ specialists who have to complete a residency to get a license.

44 Floccina June 9, 2015 at 4:10 pm

Now if we could get those countries to allow USAers to live and work there that would could help.
Dean baker says that we in the USA should contract out much medical care to those countries. That is ask them to create satellite little healthcare bases here that provide care to there standards.

45 Unanimous June 9, 2015 at 3:07 am

Of course welfare recipients aren’t willing to pay the cost of their medical coverage. If they were, they would be covered already.

I am willing to pay some of their medical coverage, and many people like me also want to, and so the tecipients get coverage. I benefit from them having coverage. I don’t want to get a disease from a large body of uncovered poor people.

46 Bob from Ohio June 9, 2015 at 12:58 pm

“I am willing to pay some of their medical coverage, and many people like me also want to, and so the tecipients get coverage.”

That is great, very charitable of you but I do have a question. Why do you make me pay for it too?

You act like you voluntarily pay for medicaid, that it is a charity you support. Rather, you actually support having the government take from me so you can feel charitable.

47 Floccina June 9, 2015 at 4:13 pm

I don’t want to get a disease from a large body of uncovered poor people.

That is public health very few are against that. That is why people can get vaccinations at the county health dpt.

48 Jason Smith June 9, 2015 at 3:39 am

So the assumed utility model tells us that Medicaid recipients don’t feel as satisfied as the assumed utility models says they would feel if they received cash instead. They’re only 40 cents satisfied when they would feel a whole dollar satisfied if they got that dollar. Based on an assumed relationship between satisfaction/utility and money. Because that’s well tested. With multiple significant figures.

Ok, got it!

49 Dale June 9, 2015 at 7:11 am

+1. This is the type of research I find worse than worthless. Measuring the value of medical care by the maximum willingness to pay is tautological. Of course, Medicaid recipients are not willing to pay what the cost of the program is – if they were, they would purchase the care (or insurance) themselves. The whole idea of Medicaid is to provide a service to a group of people that are not willing and able to pay for it themselves.

I am not defending Medicaid, as it has lots or problems. But research like this satisfies economists that just want to “prove” that government spending is wasteful. If the public understood that the “inefficiency” of Medicaid means that the program provides health care services that the recipients are not willing and able to pay for themselves, they would truly ignore what economists have to say. Better research would be to examine ways to deliver health care to the poor that are less inefficient than Medicaid. This study would tell us that we should give them cash instead. I don’t find that meaningful advice.

50 Thomas June 10, 2015 at 12:48 pm

Less than worthless but their point is tautological? So they are correct, but you disagree. Got it.

51 Bill June 9, 2015 at 9:04 am

+1 These “economists” ought to take a behavioral econ course and learn what hyperbolic discounting means. If you are poor, let me give you a choice today between money and a choice of a future benefit in the future IF you get sick, and don’t worry, the hospital will still have to serve you because you know they will.

52 Agra Brum June 9, 2015 at 4:54 pm

The survey needs an additional question: “Now, suppose you were just diagnosed with stage 1 cancer. Do you want a dollar today, or health care?”

53 Thomas June 10, 2015 at 12:50 pm

Behavioral economics. You don’t need to say all that, Bill. Just be honest: you want to dictate lifestyle choices to everyone because you are so good and we are so bad.

54 Greg June 10, 2015 at 11:49 pm

Ad hominem. Point deducted.

55 prognostication June 9, 2015 at 9:11 am

Yeah, comically bad, like most quantitative benefit analysis of benefits of public spending. And I should know, I worked on them for five years.

56 Dan June 9, 2015 at 3:58 am

Two questions:

1. It looks like this is estimating the marginal benefit of the new expenditures in the Oregon Medicaid expansion, not the average benefit of all Oregon Medicaid spending. Correct? I’d expect the average benefit to be larger than the marginal benefit, perhaps substantially so.

2. What does the benefit to non-recipients consist of? At $0.6 per dollar of government spending, it is apparently about twice as large as the benefit to recipients.

57 Brian June 9, 2015 at 4:08 am

I wonder how many non-Medicaid recipients would be willing to write a check to cover their employer’s cost of their health insurance premium. The problem with health insurance (medicaid or otherwise) is that it’s a big nut for healthy people who don’t expect to utilize it. Most of us, given the chance, would rather roll the dice on staying healthy forever and then have someone else pick up the tab for when we get sick.

Giving people cash payments and expecting them to self-insure against health catastrophes seems like one of those things that only makes sense in an econ model. And even then, can an individual really self-insure their health care costs on an actuarially sound basis? That would be tough sledding for anyone of normal means and practically impossible for anyone eligible for medicaid.

58 Yancey Ward June 9, 2015 at 11:48 am

Most of us, if forced/allowed to choose, would choose catastrophic coverage with deductibles that are quite high. This is actually the one good thing about Obamacare exchange policies, though it wasn’t really part of the design and doesn’t quite go far enough- a lot of the policies are high deductible policies.

59 Joey_33 June 9, 2015 at 12:49 pm

Well yes, we’d all make that choice, until we got sick, then our demand curve would become essentially vertical.

This isn’t speculative either – it’s how things actually operate in this space, with families going without insurance and then bankrupting themselves and their relations when things go bad.

I don’t ever want to actually have to face that choice – Sorry kids, I really would be happier with a new car than with a couple of extra years with you – so I love social insurance schemes.

60 Floccina June 9, 2015 at 4:21 pm

@Brian

1. I and other business owners that I know paid for health insurance before Obamacare.
2. What would be so bad about the non-poor paying for care with payments after the care was delivered? It would give providers incentive to get us back to work. IMO we the non-poor only need health insurance because most people have health insurance and it has lead to very high cost and too much very low value spending.

61 albatross June 9, 2015 at 4:30 pm

The fundamental problem with that is that the whole system is designed to screw over anyone who’s not an insurance company, so paying out of pocket means being more-or-less unable to get a price ahead of time, and getting some kind of list price that nobody ever pays quoted to you when you finally get the bill.

62 rayward June 9, 2015 at 6:42 am

And who might those non-recipients be? Medicaid is like private health insurance in that the benefit derived by others is large compared to the benefit derived by the insured. For the poor, the benefit derived from Medicaid is an even smaller part of the cost because outside Medicaid the poor often don’t pay for health care anyway – the care administered at the ER, for example. I suggest that Medicaid is a transfer program that only tangentially benefits the poor – a fact that is on full display in Florida as the Republican governor and the Republican state legislature try to figure out how to accommodate the hospitals who are lobbying for the state to accept expanded Medicaid, not to improve the health of the poor but the financial health of the hospitals. And then there’s Medicare. I’m reminded of the cardiologist in central Florida who annually collects between $18 million and $20 million from Medicare. Who exactly are the beneficiaries of Medicare: the seniors who qualify or the hospitals and physicians who collect most of what’s spent on the program? I suggest that Medicare is a transfer program which only tangentially benefits seniors. Of course, the same is true for our higher education budget: are the beneficiaries the students or the schools, public and private (and those who work for the schools), who collect most of what’s spent? In higher education spending, as in health care spending, what’s happened is a shift of responsibility for payment of the cost from the states (those laboratories of democracy) to the federal government, as the politicians in the states complain about runaway spending at the federal level. Hypocrisy on steroids!

63 Alain June 9, 2015 at 11:37 am

I think we all agree the people who really support Medicare are the rich doctors. Let’s get rid of it.

64 Discover More June 9, 2015 at 6:50 am

Many ex-felons are hesitant to take such jobs due to
the restricted paycheck; nevertheless, this isn’t true.

65 Jan June 9, 2015 at 7:22 am

An implication of this is that the poor would be better off getting direct cash transfers: “Our welfare estimates suggest that if (counterfactually) Medicaid recipients had to pay the government’s cost of their Medicaid, they would not be willing to do so.”

No. We help poor people with medical care rather than giving them money because we want to help them in a way that doesn’t create opportunities for them to do unwise or unhealthy things. Whether you agree with it or not, that’s a fact. And although health care in this country is extremely expensive, Medicaid gets a great deal from providers on rates for services and lower prices on drugs compared to private insurers and Medicare. Simply giving patients the money instead of Medicaid would not allow them to get the same care they get under Medicaid — it would cost the individual much, much more than it costs Medicaid.

66 MOFO. June 9, 2015 at 9:18 am

[CITATION NEEDED]

67 Jan June 9, 2015 at 10:24 am

Medicaid-paid services are cheaper than those reimbursed under Medicare, which are cheaper than those reimbursed under private insurance, which are in turn cheaper than cash, out of pocket care.

http://content.healthaffairs.org/content/27/4/w318/T3.expansion.html

http://content.healthaffairs.org/content/28/3/w510/T3.expansion.html

http://content.healthaffairs.org/content/26/3/780.full

68 Jan June 9, 2015 at 11:15 am

And here is a new one just published: 50 hospitals charge uninsured more than 10 times cost of care, study finds

http://www.washingtonpost.com/national/health-science/why-some-hospitals-can-get-away-with-price-gouging-patients-study-finds/2015/06/08/b7f5118c-0aeb-11e5-9e39-0db921c47b93_story.html

Looks like we’re going to have to transfer a lot of cash!

69 Albigensian June 9, 2015 at 11:31 am

The fantastically high cost of medical care (including prescription drugs) to those without insurance should be a scandal, but it isn’t. And government isn’t likely to do anything about it because, as the largest buyer of health services, government can often pay less than anyone else for similar services.

But, assuming nothing can be done about this, perhaps that’s an argument for those it’s-not-insurance services that do nothing but negotiate discounts for their clients?

70 Jan June 9, 2015 at 3:23 pm

Wouldn’t hurt. There should at least be mandatory price transparency for common health services. Try shopping around for care as a cash-only patient. It’s one of the least transparent industries out there.

71 adam June 9, 2015 at 2:44 pm

“We help poor people with medical care rather than giving them money because we want to help them in a way that doesn’t create opportunities for them to do unwise or unhealthy things. Whether you agree with it or not, that’s a fact.”

No. We help poor people with medical care rather than giving them money because there are large medical lobbies that hugely benefit from this set-up.

72 Jan June 9, 2015 at 3:18 pm

I applaud your cynicism, and sure that doesn’t hurt, but the medical lobby is not the main reason we have Medicaid.

If that were the case then Rick Scott, former CEO of Columbia HCA, would be clamoring for Medicaid expansion in FL. He’s not. And the AMA mainly supports Republicans, the party more opposed to Medicaid.

73 adam June 9, 2015 at 3:45 pm

Public sources indicate the AMA contributes more to whichever party happens to be in control of Congress at the time. See https://www.opensecrets.org/orgs/toprecips.php?id=D000000068&type=P&sort=A&cycle=2010

I don’t know why Rick Scott would care too much about his former employer’s finances. His primary motivation as governor of FL is his own political future. I recall that Rick Scott has run hot and cold on the medicaid expansion thing.

74 Jan June 9, 2015 at 4:03 pm

But that’s not what that link you posted shows. Between 1990 and 2014, which includes the Clinton years, the only election cycle in which the AMA gave more to Dems was 2008. Over the long term, AMA has in fact given a lot more to Republicans. From 98 to 08 in particular, >80% of their Senate donations went to Republicans. http://fivethirtyeight.com/features/american-medical-association-has-long/ In any case, if the “medical industry” just wanted more money in the healthcare system, the AMA would certainly have given much more to Dems, right? But that’s not the case. Similar issue for drug companies. They absolutely hate the mandatory rebates they have to offer for Medicaid coverage of their products. They would much prefer those poor people to get their drugs from other sources of coverage, like the exchanges.

Fair point on Rick Scott. I often make the mistake of expecting consistency in the views of politicians.

75 adam June 9, 2015 at 5:29 pm

Sure it does. It show that the Ds got more in both 2008 and 2010 cycles, when they were in power. The Rs got more in 2012 and 2014 when they got into power. The Rs were in control of congress for 6 of the 8 Clinton years.

76 Jan June 9, 2015 at 7:10 pm

? 90-95 dems controlled both houses, but AMA gave republicans more money in all three of those cycles.

And in 2008, they still gave Rs more in the Senate, where the health care legislating was actually happening.

77 Adam June 9, 2015 at 9:51 pm

Clinton took office in 1993, not 1990.

78 Thomas June 10, 2015 at 12:52 pm

“We help poor people with medical care rather than giving them money because we want to help them in a way that doesn’t create opportunities for them to do unwise or unhealthy things”

‘Poor people are stupid.’

Poor people are disproporationately black. Draw your own racist conclusions.

79 ThomasH June 9, 2015 at 7:36 am

Unfortunately, people who are unsympathetic to means-tested welfare are even less sympathetic to cash transfers..

80 Robin June 9, 2015 at 8:55 am

I think the same results would be found if we examined employer sponsored insurance. I would very much prefer to have the $2,000 per month that my employer pays for my family’s insurance as a direct cash payment. What I don’t understand is why economists would submit only 1 segment of the insurance market to this type of analysis. It would surely make much more sense to do a comparison of Medicare, Medicaid, VA, Employer Sponsored, and Privately purchased. Due to the generous tax deductions for employers the first four all represent benefit transfers from the general public to specific individuals. And all 4 involve a higher transfer to the providers than the actual recipients. I expect the value of Medicaid to its recipients (relative to a direct cash payment) isn’t much different than the value of Medicare or VA benefits to their enrollees. How many Medicare or VA beneficiaries or UAW members would take an extra $12,000 to $20,000 per year in compensation in exchange for their medical coverage?

81 MOFO. June 9, 2015 at 9:20 am

I assume the focused on Medicare because that is what the Oregon situation allowed them to study.

82 Jan June 9, 2015 at 9:57 am

It was Medicaid. Medicare is a completely different program.

83 hoonose June 9, 2015 at 12:03 pm

The Oregon Medicaid study was somewhat unique in that it allowed a more direct comparison of the 2 lottery groups. Those covered, those not.

http://en.wikipedia.org/wiki/Oregon_Medicaid_health_experiment

84 Jan June 9, 2015 at 3:19 pm

Yup.

85 Floccina June 9, 2015 at 4:29 pm

$2,000 per month!!!!

86 Sebastian H June 9, 2015 at 9:26 am

“It is a striking finding that Medicaid transfers to non-recipients are large relative to the benefits to recipients; depending on which welfare approach is used, transfers to non-recipients are between one-and-a-half and three times the size of benefits to recipients.”

I’m a bit confused by this. Does this mean that for example payments to doctors are between 1.5x and 3x the size of benefits to the recipients? Wouldn’t that be expected? Or are doctors getting more benefit out of Medicaid then they would out of normal insurance? That would make the fact that so many doctors refuse Medicaid somewhat shocking.

87 hoonose June 9, 2015 at 12:12 pm

Of course the bulk of HC related payments don’t go directly to the patient.

But left out of the study are two major values directed towards the covered patients. The first being the value of HC security imparted by having insurance in the first place. I don’t know the dollar value there. For those at low risk maybe not a big deal. But for those with disease or soon to be found disease, it might have very major value.

And second, in the Oregon study the covered patients had significantly improved mental health. And I wouldn’t know how to place a value on that either, on a per day or year basis. But as typical for many of these studies, the values of improved personal and family health, improved life and lifespan are not considered.

88 albatross June 9, 2015 at 4:33 pm

How many measures were there that could have improved? With 20 comparisons, it turns out to be pretty easy to find one that’s significate with p<0.05.

89 Dana June 9, 2015 at 9:48 am

Truly a shame that $.60 on the dollar goes to someone other than the Medicaid recipient. If only we could find a way to provide healthcare without doctors, nurses, med techs, dme, pharmacists, pharmaceuticals, administrators, orderlies…

When you find a way to appropriate “health” from the healthy and transfer it directly to the unhealthy, let me know. In the meantime, it might make an interesting premise for a sci-fi movie. Maybe Justin Timberlake is available…

90 Bill June 9, 2015 at 10:43 am

+1 We should also eliminate the X% of tuition that goes to persons other than the student, like George Mason econ profs, when it is so obvious that when services are provided by others, payments go to them for their services. Dah.

91 Dana June 9, 2015 at 11:51 am

Fortunately GMU econ profs are in the process of transferring all their skills and knowledge to an online university, so their services will not longer be needed. Another statist boondoggle demolished! Now, onto the Streaming Video Physician University…

92 Laura M June 9, 2015 at 10:12 am
93 stan June 9, 2015 at 10:25 am

Govt spends over 21,500 on anti-poverty programs for every single person living in a household under the poverty level. Anyone think the poor get value for that spending? Why should medicaid be any different than the other such programs.?

94 hoonose June 9, 2015 at 12:24 pm

Of course like so many welfare programs the money does not simply go to the recipients and end up under their mattresses. They spend the money. In HC the money goes into the medical industrial complex. As a doc myself, some of the money goes to me. Also to my hospital. Being Medicaid, of course the individual reimbursements are relatively low. But in bulk they can help support my practice and my hospital. I can tell you though that in the end the Medicaid program does not make me or my hospital rich by any means.

95 Thomas June 10, 2015 at 12:56 pm

Some of the money makes a few pit stops with progressive political groups before finally ending up back at the DNC.

96 R Richard Schwitzer June 9, 2015 at 10:52 am

Why, why, why has it become so hard to recognize and accept the effects of the inter-positioning of third party agents (with their own needs and objectives) [governmental & societal in particular] in so many levels of transactions and human interactions; disrupting and distorting interactions to points of sluggishness and apparent (often real) stagnation.

What is the evidence of benefits or improvements from such continuing and ever more pervasive intrusions? What are the correlations of those intrusions with social stratifications and stagnation?

97 Thomas June 10, 2015 at 12:57 pm

To hear it from Progressives, the benefit is that they are smart, and poor people, who are disproportionately black and female, are stupid.

98 Albigensian June 9, 2015 at 11:55 am

1. Is the perceived value of Medicaid influenced by perceived availability of charity care? That is, if I assume I can get at least some medical care for free if I can’t afford to pay (I lack sufficient assets or income to pay), then why would I NOT put a low value on insurance?

2. Behavioral economics shows that some people discount the future at a very high rate; for example, by choosing to take a sum of money today even if that means not receiving ten times that sum in six months. Someone who does this, and who is in reasonably good health, can be expected to put a low value on health insurance.

And so the question is, perhaps, to what extent is the electorate willing to live in that harsh, libertarian universe where individuals almost always bear the entire cost of their choices?

If recipients have the choice to accept cash instead of health insurance, are we willing to close the public purse to those who could have had insurance but choose the cash instead? If not, why is anyone surprised that recipients value insurance at well under its cost? And if so, if I decide that I value your health more than you do, then why would I be surprised that I get stuck with paying for it?

99 Shane M June 10, 2015 at 1:37 am

The medicaid recipient is only the partial beneficiary. The other parts include the doctor who can be reimbursed for care, and the family/relatives who are unable to care/provide for sick, old relative.

100 David Welker June 10, 2015 at 4:20 am

“Might the program in fact be a bad idea?”

The answer is no.

Tyler Cowen is a overly privileged tenured professor with a job far easier than most and a life situation such that he would never have to worry about having access to medical care.

The selfishness and sociopathy implied by this question is astonishing. Thinking that it is acceptable to let people go without needed medical care is barbaric and is a moral wrong in the same magnitude as slavery.

101 ezra abrams July 5, 2015 at 11:10 am

absolutely: would tyler volunteer to give up his insurance ?

102 Jon June 10, 2015 at 6:45 am

Unless one thinks that doctors and hospitals should provide care without reimbursement, then the “benefit” to them is not lost and should be counted.

Recipients won’t value medicaid dollar for dollar because it displaces free care and charity care they get at hospitals. We pay for that care anyhow if Medicaid does not pay.

103 Jon June 10, 2015 at 12:01 pm

In fact the “Conclusions” section of the article warns against using the study in the way Tyler is suggesting. They summarize limitations of the study and also the problem of what one measures to make the decision whether a “cash payment” vs “medicaid” is prefered.

One should also remember that utility functions are only a crude representation of preferences and well beings; See research on “present” vs “future” self. Do we optimize utility based on how the individual will feel about the decision a year later or at the moment he receives the funds? If you are not a medicaid recipient is their utility in knowing that friends and family members won’t be either left to die or chased by debt collectors for lack of insurance?

104 Bernard Yomtov June 10, 2015 at 7:23 pm

The link to the article doesn’t seem to be working.

Could this be an experiment by Tyler to see how many comments can be generated by people who haven’t read it?

105 csavage June 11, 2015 at 8:18 am

Good grief, where to start. Restaurant “Mexican” food is NOT what Mexicans eat. In Mexico, poor people eat beans, corn, and, occasionally, chicken. The restaurant food represents authentic Mexican food as much as restaurant “Chinese” food represents what a typical Chinese person eats in China. The biggest issue I see, as a doc, is that Latinos are now eating more at fast food establishments than they used to. When I was going to med school 25 years ago, Latino families ate at home and ate meals cooked “from scratch”. If a writer considers enchiladas, American style tacos, and nachos authentic, then the whole premise of his thinking is flawed. Secondly, people eligible for Medicaid are familiar with EMTALA. We have to provide free care in the ER. So, knowing that there will still be the “free clinic”, who wouldn’t want cash instead of Medicaid coverage? And, hence the real reason Medicaid is there- to provide funding for rural and intercity hospitals and pharmacies. The same could be said for Medicare as well.

106 Aaron Luchko June 11, 2015 at 10:03 am

Two thoughts:

a) Medcicaid is insurance, I’d expect every insurance plan to have negative value.

b) Poor people can’t afford many important things, what this suggests is they’re willing to forgo medical insurance before they forgo other things. Is this because they’re willing to take their chances or because they’re planning to use free emergency care and/or declare bankruptcy after running up costs. If it’s the latter it changes the benefits calculation considerable.

107 Barkley Rosser June 12, 2015 at 8:35 am

This is slightly off topic, but we had an outburst here recently about supposedly massive increases in insurance premiums being requested for Obamacare. Well, the first estimate of the likely national increase is in, 5.8%, a slight increase from last year’s 5.4%, with Oregon tops at 12.0%, but Michigan looking at a decrease of 5.3%.

Those who got all insulting and hysterical about the supposed looming disaster should apologize and admit how wrong and stupid they are. You know who you are.

108 Thomas Sewell June 13, 2015 at 11:07 am

I wasn’t involved in the original discussion you’re referring to, but happened to have read this morning http://www.forbes.com/sites/realspin/2015/06/10/why-are-the-2016-obamacare-rate-increases-so-large/ which directly contradicts your statements.

109 ezra abrams July 5, 2015 at 11:09 am

as a liberal, I would like to agree, but it seems like the *asked for* rate increases are actually quite large
http://www.nytimes.com/2015/07/04/us/health-insurance-companies-seek-big-rate-increases-for-2016.html

but perhaps you have data ?
I have noted that the liberal blogosphere that i follow – brad delong, krugman, etc has been kinda quiet on this one

110 David C June 16, 2015 at 9:58 am

“An implication of this is that the poor would be better off getting direct cash transfers:”

The same would likely be true of those receiving benefits via the GI Bill, mortgage interest deductions etc… But of course this is all built on a false comparison of costs and benefits. By comparing the total costs to only some of the benefits (usually by using only the most prominent and promoted beneficiaries) we can make things seem like they are not worth it. But helping to make life better for the poor (through better health) is only one goal and only one benefit. There are also benefits to society of having the poor be in better health – maybe they can rejoin the workforce, avoid committing crime or provide better parenting. So asking whether the poor would be better off is really the wrong question. The right question is how can we best maximize total benefits for the given cost.

111 civisisus June 23, 2015 at 12:40 am

I was curious what sort of comments might follow around noted crypto-libertarian funnyeconomicsman Tyler Cowen’s musings on the Finkelstein working paper.

I’m no longer curious.

Approximately 87% of you need to get out of your basements and get some healthy fresh air. You seem to have a good handle on a few au courant reductionist economic theories, and almost no idea how people get and/or pay for health treatment in the real US of A.

Finkelstein is some kind of economic goddess, I hear. I hear, and I shake my damn head. That working paper of hers will work a lot better with the addition of about a dozen more pages of qualifiers, disclaimers, and other warnings that she and her collaborators have not yet really given enough attention to how much their work turns out to be about the limitations of present-day economics methodology rather than the insights that might be extracted from her precious Oregon Medicaid lottery, .

112 ezra abrams July 5, 2015 at 11:06 am

agree
you read that first utility equation, and it is like, phlogiston epicycles…

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114 ezra abrams July 5, 2015 at 11:05 am

Tyler: put your money where your mouth is: GIVE UP YOUR HEALTH INSURANCE !!

what, not in a million years because…

kinda puts all that academic math theory to rest , doesn’t it ?

not to say, as a liberal, that medicaid and MDs aren’t all screwed up:
case 1: as a result of poor diet and lack of exercise, I get type II diabetes; MD says take a class with the RN on eating
first thing the RN does is recommend very very $ brand name cereal, when a no name with same benefits is available for 1/3 the price; I walk out of the RNs talk

case 2: my elderly relative goes in the hospital, and it is clear, one thing and another, serious constiption issues (if you know, this is not a joke [1])
do the MDs counsel on diet ?
NO
so, relative now need totally avoidable surgery

[1] constipation in the elderly, esp those on opiod painkillers, is actually a serious medical condition

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