To see the problem, consider Brian’s situation. He’s a single adult, age 45, earning $35,000 a year. BCRA (section 102(b)(2)) expects Brian to contribute a little more than 8.3% of that income to purchase a health insurance policy. That’s about $2,911. The federal government would chip in the amount needed to let Brian buy a “median benchmark” policy in his region. That policy won’t be lavish: on average it will pay for 58% of covered expenses, but it might well let Brian avoid bankruptcy if he gets extremely sick. It will also get Brian low, pre-negotiated rates for a lot of medical treatment instead of being subject to astronomical “Chargemaster” prices that hospitals often charge the uninsured. So, if that Bronze policy costs $4,500, Brian would pay $2,911 and the federal government would pay $1,089.

Suppose Brian succeeds at work and gets a $5,000 raise; or suppose Brian gets a part time job to help supplement his income and earns $5,000 more. Now, because his income is $40,000, section 102(b)(2) of BCRA expects Brian to contribute 11.3% of his income to healthcare. Since that’s $4,558, Brian in fact pays for the whole $4,500 policy; the federal government pays nothing. So, although Brian’s raise is $5,000, he pays an extra $1,589 in premiums. His effective marginal tax is almost 32% just from the BCRA alone. When one combines his loss of a subsidy with increased income taxes of $1,488 and an increased payroll tax of $382.50 (double that if Brian’s new job is deemed self-employment), Brian’s gets to keep at most $1,541 of his new $5,000. His effective marginal tax rate is at least 69%. It’s probably even higher if Brian faces state income tax or suffers a phase out of other government income-based benefits.

That is from Seth Chandler.  Ross Douthat has a good bottom-line take on the bill.

Here is a good summary and analysis from Megan McArdle, here is one key part:

But while there are a few things to like in this bill, overall, it’s a mess.  All of the problems created by Obamacare’s architecture remain, and some of the problems will get worse, because lower subsidies, higher deductibles and no mandate penalty probably means that a lot of people will exit the exchanges.  Those people are likely to be the folks we most need to stabilize those exchanges: healthy youngsters who don’t use much health care.  Which means that the exchanges will be at further risk from the death spirals we’ve already seen in some states.

I agree the bill is a bad idea.  That said, I do hope you keep in perspective some of the more, um, lurid critiques running around, including from health care economists (the Great Firewall won’t let me link to Twitter, and right now VPN is down).  You can read them as sociology, however, with a rather chilling effect.

Boston-based DNA sequencing company is offering to decode the complete genomes of newborns in China, leading some to ask how much parents should know about their children’s genes at birth.

Veritas Genetics says the test, ordered by a doctor, will report back on 950 serious early- and later-life disease risks, 200 genes connected to drug reactions, and more than 100 physical traits a child is likely to have.

Called myBabyGenome, the service costs $1,500 and could help identify serious hidden problems in newborns, the company says.

But some doctors say the plan is a huge overstep. “I think it’s vastly premature to peddle a completely unproven set of data, especially to a vulnerable population like neonates,” says Jim Evans, a professor of genetics at the University of North Carolina Chapel Hill.

The problem is that the risk posed by many disease genes remains uncertain. Even if a child has a mutation in a gene, he or she may never be affected, prompting debate among doctors about whether it’s useful to inform parents.

The Veritas test also steps into uncharted territory by making predictions about how children will look and act: how wide their nose will be, whether they will overeat or have a “novelty seeking” personality, and even whether they are likely to go bald decades in the future.

Evans is sharply critical of any effort to predict traits. Especially with psychology, he says, genetic factors aren’t well understood. “You run the risk of predestination based on bad science,” he says. “Frankly, I think it’s a little bit crazy to do genetic tests on your newborn to find out if 40 years from now they are going to be bald.”

Here is the full story, it has further interesting points.

And here is yet another paper suggesting that medical care, or at least some forms of it, has relatively low marginal value.  The subtitle of this one is “Evidence from Mandatory Checkups in Japan” and the authors are Toshiaki Iizuka, Katsuhiko Nishiyama, Brian Chen, and Karen Eggleston.  Here is the abstract:

Using unique individual-level panel data, we investigate whether preventive medical care triggered by health checkups is worth the cost. We exploit the fact that biomarkers just below and above a threshold may be viewed as random. We find that people respond to health signals and increase physician visits. However, we find no evidence that additional care is cost effective. For the “borderline type” (“pre-diabetes”) threshold for diabetes, medical care utilization increases but neither physical measures nor predicted risks of mortality or serious complications improve. For efficient use of medical resources, cost effectiveness of preventive care must be carefully examined.

Here is the NBER link.

If pharmaceutical reciprocity is a good idea for the United States, it’s a great idea for smaller countries. Indeed, this is mostly what happens in practice, even if not by law, since smaller countries can’t afford or justify the expensive US process. Fred Roeder of the Montreal Economic Institute makes the case for reciprocity in Canada:

…reciprocal recognition of drug approval authorities on both sides of the Atlantic would incentivize Canadian, European and American authorities to spend less time and money conducting parallel reviews. If the HPFB, the FDA or the EMA approved a drug, patients in Canada, Europe and America would have immediate access to it — increasing consumers’ choice as new drugs are offered to patients faster and more affordably, with less red tape driving up costs.

A reduction in approval time can be a win-win for patients and firms because a decrease in approval time is an increase in effective patent length without an actual increase in patent length. The numbers below are optimistic, but the idea that streamlining approval can increase profits and stimulate investment is correct:

These market-oriented reforms would not benefit not only consumers, but the pharmaceutical companies as well, expanding the timespan of the patents. On average, new drugs have a mere 10 to 14 years of patent protection remaining by the time they are sold to consumers after they have successfully jumped over all the government hurdles. Streamlining the drug approval process would increase the timespan of patented drugs on the market by 50 to 70 per cent.

Roeder also mentions Bart Madden’s important book Free to Choose Medicine. (For those who don’t know, I am proud to be the Bartley J. Madden chair in economics at Mercatus at GMU.)

BMJ: In a national sample of elderly Medicare beneficiaries admitted to hospital with medical conditions, we found that patients treated by older physicians had higher 30 day mortality than those cared for by younger physicians, despite similar patient characteristics. These associations were found among physicians with low and medium volumes of patients but not among those with high volumes.

…Our findings suggest that within the same hospital, patients treated by physicians aged <40 have 0.85 times the odds of dying (1.00/1.17) or an 11% lower probability of dying (10.8/12.1), compared with patients cared for by physicians aged ≥60 (table 2⇑). This difference in mortality is comparable with the impact of statins for the primary prevention of cardiovascular mortality on all cause mortality (odds ratio of 0.86)39 or the impact of β blockers on mortality among patients with myocardial infarction (incidence rate ratio of 0.86),40 indicating that our observed difference in mortality is not only statistically significant but arguably clinically significant. In addition, if our results are causal, an adjusted risk difference of 1.3 percentage points suggests that for every 77 patients treated by doctors aged ≥60, one fewer patient would die within 30 days of admission if those patients were cared for by physicians aged <40.

The paper has data on over 700,000 Medicare admissions and over 18 thousand hospitalist physicians. Physicians are assigned to patients more or less randomly depending on admission time so there are no significant differences between patients assigned to younger and older physicians. Older physicians are more likely to be male and, of course, to be trained during a different time period so the paper can’t fully distinguish age effects from cohort effects. The authors do find that older physicians who work a lot perform well–perhaps these physicians update their training or perhaps they are a self-selected vigorous sample. Continuing medical education and assessment requirements are probably very valuable.

Hat tip: Eric Topol.

That is the query motivating my latest Bloomberg column, here is one bit:

Second, the higher health-care spending for women is partly because of services related to childbearing. Society may have an obligation to help out babies (and mothers), plus they will someday finance our retirement, so let’s make childbearing easy. That said, governments have numerous means of subsidizing childbearing — direct payments, tax credits, free clinical services and public education — and it’s not obvious that regulating insurance pricing is this best way to achieve this end.


Uniform pricing also gives insurance companies less incentive to attract female policyholders. To be sure, as a matter of law the companies cannot turn women away. But if writing policies for women is less profitable, or perhaps unprofitable altogether, the insurance companies will allow or encourage their provider networks to evolve in a way that is more attractive to men than to women. Services for women, including for childbearing, might end up underprovided or stagnate in quality. That also would be a kind of differential treatment, with potentially dire consequences.

There is much more at the link, controversial throughout.  You’ll find plenty of overwrought reactions on Twitter, simply because I am saying there is a trade-off, and we do not yet know what is the right margin to seek.

In The Failure of Solanezumab –How the FDA Saved Taxpayers Billions, an article in the NEJM, Sacks, Avorn and Kesselheim (SAK) defend the FDA by arguing that its high standards prevented the Alzheimer’s drug, Solanezumab, from being approved and thus saved the taxpayers billions in Medicare payments.

It is, of course, not the job of the FDA to approve or fail to approve a drug based on its effect on taxpayers. The FDA has historically stood independent of this kind of politics and that has been all to the good. But the SAK article is a reminder that under socialized medicine every FDA decision moves money from one patient group to another and between patients and taxpayers thus FDA decisions become a tempting leverage point to control allocation through collective choice.

I do not favor collective, which is to say politicized, choice and find much else objectionable in the SAK article–it attempts, for example, to evaluate a rule by examining a single decision when a system-wide, long-run analysis is called for. Rather than go into detail, however, let’s instead point to a much better article by Vradenburg, Fillit, Morgan, Sabbagh, Aisen, and Mohs, a group of leading physicians and scientists who treat Alzheimer patients and research the disease.

Rather than support or criticize an isolated FDA decision, Vradenburg et al. call for a change to the rule/norm currently used to evaluate Alzheimer’s drugs:

The analysis…recommends that the FDA approve new medicines that demonstrate a proven benefit on at least one therapeutic endpoint – either cognition or function. The current FDA standards require a new drug to show benefits on both proven endpoints, an unnecessarily challenging hurdle the authors say may be inhibiting investment in new Alzheimer’s treatments.

The authors make three excellent points about such a change. First:

…the success rate of drugs tested for Alzheimer’s disease has been extraordinarily low when compared with drugs in other therapeutic areas. Of the 244 compounds that were tested in 413 clinical trials between 2002 and 2012, only one resulted in approval of a new chemical entity, in 2003. No others have been approved since that time; the failure rate in clinical trials conducted over the last decade exceeds 99.6%. This staggeringly high failure rate has adversely impacted investment in Alzheimer’s disease research at precisely the time when new advances are most needed.

The failure rate reflects how difficult the problem is but also policy. Either way, when firms look at the billions of dollars in research and development that haven’t led to a single approved drug they are naturally wary about spending more. Breakthroughs don’t happen randomly, however, they happen after lots of trial and error. To stimulate such trial and error firms need revenues and thus to stimulate more swings at the bat it may be justified to approve drugs with relatively small benefits.

Second, as I have noted previously, the FDA needs to be careful not to commit an error of composition. Three ineffective drugs need not add up to an ineffective treatment.

Many drugs in development for Alzheimer’s disease have complementary mechanisms of action. Even if each of these might, individually, deliver a modest clinical benefit, when used in combination or adjunctively, the benefit could become more substantial. If the FDA were to reject, individually, several safe and well-tolerated therapies with complementary mechanisms of action that each demonstrate a modest clinical benefit, it would unwittingly deprive patients of potentially substantial advances in the quality of treatment over the long run with a combination of therapies.

Third, it is ultimately the patient that matters, especially with regard to Alzheimer’s where so much depends on the patient’s internal experiences, and thus we ought to be careful before rejecting their perspective:

The ultimate perspective on clinical meaningfulness, of course, comes from the patient….Efforts to identify what matters, what matters most and how much change matters to patients should become a priority for the field, focused on all stages of the disease. The requirements of the recently-passed 21st Century Cures Act are instructive in this regard.

Hat tip: Abhay Moghekar

MacWorld: Developers of the Apple Watch app Cardiogram worked with researchers leading the University of California San Francisco’s Health eHeart study to develop a ResearchKit-based study of their own called mRhythm. On Thursday, Cardiogram and UCSF’s cardiology division are presenting the results of that 14-month study, which collected more than 100 million heart rate data points from more than 6,000 Apple Watch users. Cardiogram developed a machine learning-powered algorithm that can detect atrial fibrillation, which is often asymptomatic.

Cardiogram’s algorithm was tested against an in-hospital test called cardioversion. Patients experiencing atrial fibrillation, which affects one in four people in their lifetime and causes 25 percent of all strokes, wore an Apple Watch while undergoing cardioversion to compare outcomes. Both segments, the cardioversion test and the Apple Watch’s heart rate data, were blinded against whether the patients’ heart rates were normal or abnormal, then sent to Cardiogram’s algorithm. The results: the Apple Watch data detected atrial fibrillation 97 percent of the time.

Apple has been communicating privately with the FDA for years about medical devices and so far the FDA has taken a light touch to Apple but these issues are coming to a head. As with the regulation of DNA tests, the regulation of these devices is going to raise important free speech issues. It’s one thing to ensure that the devices do what they say they do at reasonable accuracy (measure heart rate, identify genes etc.) but regulating what advice may be given on the basis of such readings is problematic. Can the FDA regulate a website that says go see your doctor if your heart rate monitor exhibits these particular readings? Why is an app that tells you the same thing any different?

Hat tip: Samir Varma.

That is the topic of my latest Bloomberg column.  It does not focus on single payer, but that is the part I will pass along to you:

Another way to manage health-care subsidies would be a single-payer system, and some commentators suggest that is where the Democratic Party is headed. I wouldn’t be so sure. Obama made his (partially incorrect) “if you like your health care plan, you can keep it” promise for a reason. The Americans who get health insurance through their jobs often enjoy privileged access to doctors and benefit from superior reimbursement rates.

If the price of covering the sick is for millions of wealthier and more influential people to give up those advantages, I don’t see that happening. The health-insurance industry and other medical lobbies will be opposed, too, with doctors fearing that a single-payer system would bargain down their reimbursement rates. Even a relatively progressive state such as Vermont could not make a single-payer system happen.

You can think of current debates over health policy as a game of hot potato in which “who loses?” and “who pays?” are questions nobody finds easy to answer but also questions that no party can ultimately avoid. Obamacare didn’t come up with a sustainable answer; neither, so far, have the Republicans.

Do read the whole thing.

In my view, the Republicans have had a very weak hand to play on health care (not enough good ideas!), but over the last week they have played it brilliantly (which is not the same thing as having good policies).  Those House members who need to say “I voted to repeal Obamacare” can now do so.  The Republicans also have an option on proceeding further with reform, with everyone knowing the Senate will write its own bill.  The defects of what they voted for are not so significant for this reason, and the cavalier attitude of many House Republicans toward the contents of the bill makes perfect sense.

At the same time, the Republicans have the option of letting the bill die in the Senate, where it is far easier to blame the Democrats for inaction — how many American swing voters understand the fine points of the Byrd rule and filibuster anyway?  If you are what I call a “fulminating Democrat,” you are actually playing into Republican hands on this one (it would have been better to have spent the week saying abortion should be legal but rare, and talking about white people).

The big victory celebration pleased Trump, but more importantly all Republicans involved learned there is a way forward on many other issues: let Congress lead the way and pull Trump out of the bully role.  That lesson won’t soon be forgotten.  And from Trump’s point of view, he hasn’t given up the option of later working with the Democrats to pass a more centrist version of health care reform.

I don’t see the broader American public as so impressed with the Democrats’ arguments against the bill, mostly because they are not paying attention.  It doesn’t feel like it has the urgency of when Obamacare was passed, and in fact it doesn’t.  No one succeeded in showing it did, because it didn’t.

I still see the Republican House majority as extremely fragile, but on this one I believe the Democrats got pwned.

There is a new and very good paper on that question by Amy Finkelstein, Nathaniel Hendren, and Mark Shepard (pdf).  In reality, the price elasticity of demand for health insurance is quite high, at least among lower-income groups:

How much are low-income individuals willing to pay for health insurance, and what are the implications for insurance markets? Using administrative data from Massachusetts’ subsidized insurance exchange, we exploit discontinuities in the subsidy schedule to estimate willingness to pay and costs of insurance among low-income adults…For at least 70 percent of the low-income eligible population, we find that willingness to pay for insurance is far below the average cost curve – what it would cost insurers to provide coverage to all who would enroll if the premium were set equal to that WTP. Adverse selection exists, despite the presence of the coverage mandate, but is not the driving force behind low take up. We estimate that willingness to pay is only about one-third of own costs; thus even if insurers could offer actuarially fair, type-specific prices, at least 70 percent of the market would be uncovered.

That is from both the abstract and conclusion.  I do understand the ideal of universal coverage, but note this:

For example, we estimate that subsidizing insurer prices by 90% would lead only about three-quarters of potential enrollees to buy insurance.

The somewhat depressing and underexplored implication is that the beneficiaries do not love Obamacare as much as some of you do.  In fact you may remember a result from last year, from the research of Mark Pauly, indicating that “close to half” of households covered by the unsubsidized mandate, by the standards of their own preferences, would prefer not to purchase health insurance.  And that was before some of the recent rounds of premium increases, and overall these new results seem to imply even lower demands for health insurance relative to cash.

Now, I think it is an open question how much “non-paternalism” is the correct moral stance here.  Maybe we should force upon people more health insurance than they would purchase in an adverse selection-free market, because a) they are ill-informed, b) they have children, or c) ex post we still need to take care of them in some way, if indeed their gamble to not purchase insurance turns out badly.

Do, however, note the words of the authors: “We conclude that the size of uncompensated care for low-income populations provides a plausible explanation for their low WTP.”  In other words, many of the poor do not value health insurance nearly as much as many planners feel they ought to, in large part because they are already getting some health care.

In any case, consider a political economy point if nothing else.  If you institute a policy that forces on people more health insurance than they think they wish to buy, do not be shocked if a huckster comes along offering them a supposedly better deal, and gets away with it.

Along related lines, consider also this result:

From the perspective of social welfare, to justify connecting the 5% least dense areas of North Carolina would require each adopting household value high speed wired broadband access at more than $1519 per month.

For the pointers I thank Peter Metrinko and Kevin Lewis.

I will be doing a Conversations with Tyler with him, though podcast only, not a public event.  What should I ask him?

I thank you in advance for your suggestions.

That is one of the debates swirling around the resuscitated Republican health care plan (NYT summary), which now seems to have some chance of passing.  Sarah Kliff writes:

The Republican solution to sick people who need health insurance in a post-Obamacare world is increasingly coming to center on three words: high-risk pools.

The White House has reportedly secured the support of Rep. Fred Upton (R-MI), a longtime legislator, by promising an additional $8 billion to fund these programs. That would mean the Republican plan has nearly $115 billion that states could use, if they wanted to, for high-risk pools.

…There were 35 state high-risk pools before the Affordable Care Act passed. To control costs, they would often do things like charge higher premiums than the individual market. Most had waiting periods before they would pay claims on members’ preexisting conditions, meaning a cancer patient would need to pay premiums for six months or a year before the high-risk pool would cover her chemotherapy treatments.

Kliff then notes those pools have proved quite expensive.  And:

The Republican bill doesn’t require states to build high-risk pools — it just gives them the option. And it has little to say about how states should build them if they decide to do so. It is possible they would also have lifetime limits and preexisting condition waiting periods. Those details are hugely important, but are unlikely to get sorted out until after the bill passes and the Trump administration begins to write regulations.

I don’t favor ACHA, which I see as bringing no benefit and also as involving a cynical desire to repeal Obamacare simply to fulfill a campaign promise (and it needs a CBO score).  Still, I see many people fulminating about this change toward high risk pools, yet without defending their position much beyond a hand wave.  Should all requests for emergency medical care receive additional government funding?  Obamacare itself does not embody anything remotely like that principle, for instance consider all the medical conditions not covered under the mandate, or covered only imperfectly.  Not to mention the rare diseases that receive only limited R&D dollars.  And we’re about to run out of yellow fever vaccine — nasty!  The list goes on and on.  How are those pandemic preparations coming?

If the federal government is asked to pick up the tab for high-risk pools or some rough equivalent, it probably visualizes the cost in terms of either additional borrowing or as a common pool problem.  It is close to a free lunch in political terms, arguably even a political benefit, now that Obamacare is more popular.

If balanced-budget state governments are asked to pick up the tab, they will wonder whether that money should better be spent on schools, roads, and prisons.  Many of them will be reluctant.  Maybe that is right or wrong, but is “let’s have a democratically elected state government decide how much to subsidize medical care for those with preexisting conditions” such a morally outrageous view?  I guess it is these days.  The simple but underemphasized truth is that under the new bill state governments can spend as much as they want on high-risk pools.

(Is it not sobering to think that if the high-risk patients are put into a separate pool, and have to ask for state-level but taxpayer-sourced money in a direct and transparent manner, the political support for that funding is not so strong?  That is perhaps the real lesson here.  In this debate, both sides are the enemies of transparency.)

Which is the better perspective?  Federal or local?  The answer is obvious if you believe all requests for emergency medical care should receive additional government funding.  But, as I’ve mentioned, no one believes that.  I do see people who cite that principle when it is convenient in one part of a debate, and who forget about the same principle for other policy choices.

And please, don’t compare these marginal health care expenditures to “tax cuts for the rich” — instead advocate for where you most want to see the money spent!  Don’t let the silly Republicans bail out your analytical apparatus once again; any program is easy to justify in your own mind if you put it up against what you consider to be a very weak alternative use of the funds.  It is fine to say “bigger subsidies for high-risk pools are better than tax cuts for the rich, but they are still only my 17th most preferred use for the funds.”

Along related lines, while I favor taking in many more refugees, I also understand that any feasible migration policy involves leaving many refugees and potential migrants to their possible deaths, and with a relatively high probability in some cases.  So if your moral argument is “we should let in person x, or person x will die,” you need to provide a limiting principle once again.

Most generally, beware of moral arguments that a) lower the status of some other group of people, and b) do not state and justify their limiting principles.  They are ways of substituting in pleasurable moralizing in lieu of dealing with the really tough questions.

Addendum: Here are some new and relevant results cited by David Leonhardt, I haven’t had time yet to read through them.

That is a new project by Jonathan Haidt and the Heterodox Academy, here is a partial summary:

Heterodox Academy announces a simpler, easier, and cheaper alternative: The Viewpoint Diversity Experience. It is a resource created by the members of Heterodox Academy that takes students on a six-step journey, at the end of which they will be better able to live alongside—and learn from—fellow students who do not share their politics.

It’s a very flexible resource that can be completed by individuals before they arrive on campus, presented in an orientation-week workshop, or expanded into a full semester course that students can take during their first year. (It could also be helpful in high schools, companies, religious congregations, and any other organizations that are experiencing sharp political divisions and conflicts.)

…The site is still under development: we welcome feedback and criticism. We particularly seek out professors, high school teachers, and diversity trainers who will partner with us to develop detailed teaching plans and activities. We will have a larger public launch of the project in August, complete with assessment materials that will allow you to measure whether the curriculum actually increased political knowledge and cross-partisan understanding.

Do click on the site itself for a fuller explanation, and please help out if you can.