Category: Medicine

Will Employers Undermine Health Care Reform by Dumping Sick Employees?

Amy Monahan and Daniel Schwarcz write:

This Essay argues that federal health care reform may induce employers to redesign their health plans to encourage employees who are likely to consume a greater-than-average amount of medical services to opt out of employer-provided coverage and instead acquire coverage on the individual market. Although largely overlooked in public policy debates, this prospect of employer dumping of high-risk employees raises serious concerns about the sustainability of health care reform more generally. In particular, it threatens the viability of individual markets and insurance exchanges by raising the prospect of adverse selection in these markets caused by the entrance of a disproportionately high-risk segment of the population. This risk, in turn, simultaneously threatens to increase the cost to the federal government of subsidizing coverage for qualified individuals and to exempt more individuals from complying with the so-called “individual mandate.” The Essay offers several legislative solutions to the prospect of high-risk employee dumping that can substantially mitigate these risks.

I found the critique section of the paper more convincing than the legal remedies, but in any case it is an important piece.  Schwarcz wrote in the MR comments section:

The worry over employers shedding employees onto the exchange is exactly right, but in a different way than almost everyone seems to think. The real risk is NOT that employers will completely drop coverage, leaving their employees to purchase coverage on the exchange. Instead, it is that employers will offer all employees revised plans that are specifically designed to induce ONLY THE LEAST HEALTHY employees to opt for coverage on the exchange. Most seem to ignore this risk because such employees would not be eligible for subsidies. But employers would nonetheless find this an extremely desirable strategy because (i) they would avoid any penalty under the "employer mandate," (ii) their health care costs would decrease substantially by virtue of reducing coverage and shedding high-cost employees, (iii) high-cost employees would not be much worse off, as they could acquire coverage on the exchange with no medical underwriting or preexisting conditions. While coverage for high risk employees would cost more on the exchange than employer coverage, the employer could defray this cost by putting it's normal contribution into a tax free HRA Account, which could be used for coverage. The employer and its employees would be better off, and exchanges would be subjected to the risk of adverse selection from a disproportionately risky pool of policyholders. For much more on this, see: http://ssrn.com/abstract=1651308.

Addendum: Austin Frakt comments.

Obamacare: where are we?

I became so sick of blogging this topic, but it's time to revisit where matters stand:

1. The health care sector is becoming more concentrated, largely through mergers and acquisitions.  Some of this is long-term trend, and some of it is a direct response to a more regulated and rent-seeking-intensive sector.  By no means I am against corporate bigness per se, but this does not augur well for cost control and affordability.

2. It seems more obvious that requiring health insurance companies to limit their overhead costs is a mistake.  It is leading to more concentration in the sector and probably to more accounting chicanery as well.

3. Contrary to my earlier expectations, the legal issues are not going away.  They had seemed like non-starters to me, but I now could imagine that a few Federal judges rule against the mandate and there is a subsequent crisis of confidence as some major Democrats run for cover rather than defending the policy.  I now give this scenario 35-65 rather than 10-90.  The fact that mandate enforcement could be passed to the state level, without much affecting the operation of the plan, doesn't matter any more, given the spin such rulings of unconstitutionality would receive.

4. Negative trends in health care markets continue, and many of these will be blamed, by many people, on the new health care reform.  In fact Obamacare will make some of these trends worse (e.g., private insurance patients pushing out Medicaid patients), but Obamacare will be blamed for this problem before the extra negative effect starts operating.  I understand the political logic of how benefits programs became popular and then become locked into place, but I'm seeing more clearly now that the health care reform simply isn't well timed to be very popular.

5. The differential payment rates across Medicare, Medicaid, and private insurance are becoming unsustainable more quickly than I had anticipated; see for instance the link in #4.  Further reforms will be required more quickly than had been anticipated, but it's not obvious how such reforms should proceed.  It's hard to either upgrade the Medicaid (and Medicare) rates or to downgrade the private insurance rates.  Monitor this one closely, because it is likely to prove the breaking point of our health care status quo, with or without the Obama plan.  (This is our version of the ticking time bomb within the eurozone, namely that natural rates of growth split apart a distortion, increasingly, over time.)

6. I am less worried about mandate enforcement than I used to be; Austin Frakt has had good posts on this at TheIncidentalEconomist, see here.

7. I am more worried about employers shedding employees onto the subsidized exchanges than I used to be; Reihan Salam has had good posts on this topic and how it could prove to be a fiscal breaking point for the new law.  You can argue that this is the actual long-run restructuring plan, but unless we are willing to go the "Medicaid for all reimbursement rates" route, I don't see how we afford it.

8. I have the new worry of uncooperative state governors trying to shed their Medicaid loads onto the federally-subsidized health insurance exchanges.  Could one or two rogue states on this issue create a crisis in the system?  I find this one hard to judge, both politically and logistically, but six months ago I wasn't thinking about it at all.

9. The Republicans still don't have a good alternative plan or compromise to offer, should a chance for renegotiation arise.

Overall, the policy is shaping up to be a mess more quickly than I had thought, though not through the mechanisms I had been expecting.  It still seems to have too many jerry-rigged pressure points.

I'm all for a compromise allowing greater state-level experimentation with health care policy.

Does the UK have the best health care institutions in the world?

Not in the present day time slice sense ("did he write "best," didn't he mean "worst"?"), but think of it over time.  There is a big lock-in effect.  The United States, for instance, cannot easily switch into another way of organizing its health care system.  Obamacare is built upon current institutions and, for better or worse, does more to lock them in than to modify them.

Let's say you think an optimal mix is government-run clinics for the poor and reliance on the market for wealthier individuals, with people in the middle using some mix of the two.  The government clinics enact redistribution at relatively low cost and this means you don't have to overly regulate the private market.  People can take their chances with the market, or fall back on the cheaper but possibly inferior government service.  Think of it as a public option at the level of provision rather than insurance.

Now that is not exactly the current regime in the United Kingdom.  For one thing, the public sector is too large and the private alternatives are both too small and not free enough.  But could you not imagine their institutions evolving into some version of this, mostly through growth of a less-regulated market sector?

Can you imagine the same evolution for the American system?  

Addendum: Ezra discusses how the American system might evolve.  And Austin Frakt comments.

Beware some markets in everything

Whenever you see an "investigator" charge patients to undergo an experimental protocol, be very very wary. Be very, very afraid. In general, with very few exceptions, reputable medical researchers do not charge patients to undergo experimental protocols; their studies are funded with grants from the government, private foundations, or pharmaceutical companies.

That is Orac on Luc Montagnier, Nobel Laureate; hat tip goes to Steve Silberman on Twitter.  Steve also links to this article about a recent Randian educational scam.

Who again is supposed to cut the rate of growth of Medicare spending?

A federal advisory committee said Wednesday that there was adequate evidence that the drug Provenge prolongs the lives of men with advanced prostate cancer, an endorsement that makes it more likely that Medicare will pay for the $93,000 treatment.

The Medicare Coverage Advisory Committee voted that it had “intermediate confidence” in the strength of the data that the drug, developed by Dendreon, improves survival.

The median result in trials is four extra months of life, and the link is here.  If you think that four months of life are worth $93,000 of public money, that is a defensible position.  But how many times can you apply that argument?  I saw this treatment as a good candidate for allocation by market mechanisms, but I suppose that's not how it will be.

Our health insurance future?

Here is an abstract from Sebastian Bauhoff:

This paper evaluates whether health plans in Germany's Social Health Insurance select on an easily observable predictor of risk: geography. To identify plan behavior separately from concurrent demand-side adverse selection, I implement a double-blind audit study in which plans are contacted by fictitious applicants from different locations. I find that plans are less likely to respond and follow-up with applicants from higher-cost regions, such as West Germany. The results suggest that supply-side selection may emerge even in heavily regulated insurance markets.

Here are relevant comments from Aaron Carroll:

Such insurance [on the exchanges] is going to have to come with restrictions.  There might be network restrictions (such as seeing only certain providers).  There might be gateways people don’t like.  And there might be other rules in place that people don’t anticipate.

My conversations lead me to believe that many people are expecting that the plans offered in the exchanges will be Medicare-like in many ways.  I feel like many people think they will have choice of doctor, choice of hospital, and the ability to dictate care.  I’m not seeing how insurance companies will be able to offer such products at prices people can afford.  As I talk to more and more people in the insurance industry, my thoughts seem confirmed.

One problem with charter cities

In Haiti there are riots against the UN, for fear that the aid mission brought cholera to the country:

…clashes between rioters and troops left two dead, dozens injured, foreigners in hiding and an awful question hanging in the tear-gassed air: did the UN mission, known as Minustah, bring cholera to Haiti?

The boys and men hurling rocks and bottles and shooting at foreign soldiers in the northern towns of Cap-Haitien and Hinche had no doubt. Nor did the residents of Port-au-Prince, who greeted UN convoys with sullen stares and insults.

The circumstantial evidence, which is not considered to be definitive, is this:

There had been no cholera here in living memory. The strain appears to be from south Asia. Soldiers from Nepal, which has cholera, moved into a base beside the Artibonite river in early October. The base has sanitation problems. A week later the river was contaminated and people in the area started vomiting and getting diarrhoea.

*The Emperor of all Maladies*

The author is Siddhartha Mukherjee and the subtitle is A Biography of Cancer.  This is not a typical excerpt, but it works as an excerpt for this blog:

In 1942, when Merck had shipped out its first batch of penicillin — a mere five and a half grams of the drug — that amount had represented half of the entire stock of the antibiotic in America.  A decade later, penicillin was being mass-produced so effectively that its price had sunk to four cents for a dose, one-eighth the cost of a half gallon of milk.

This book deserves its rave reviews; it is one of the best non-fiction works of the year.

Related to this topic, here is an update on Christopher Hitchens.

Antonio Trujillo’s diabetes nudge bleg

I am a junior faculty at Hopkins and my area of interest is to understand the low level of compliance with prevention among diabetics and hypertensive.  Low compliance with medical treatment happens in several health domains. My aim is to develop preventive guidelines that incorporate individual differences.  In particular, I am doing some work to measure how non-cognitive skills (eg., self-discipline, persistence, self-control) influence compliance.  I have also done research relating cognitive skills and prevention.  Most of my work is on low and middle-income countries. However, I think that some of my findings may be generalized.

I am not very familiar with tools from behavioral economics; instead my analysis is heavily based on health economics, labor economics and health policy.  Given your knowledge in behavioral economics, I wonder how you would approach this problem.  

Here is one article on the topic, and here are a few more, and here.  One intuition is that compliance is so weak because people are afraid of bad news, and so they shut the topic out of their minds altogether.  Complying reminds them of the topic.  Being less worried might help them comply.

A common economic intuition, which I usually disagree with, is to make people post expensive bonds and confiscate the bond if they do not comply.  In my view this works only once and afterwards the person wants nothing to do with the game.

An additional method is to make compliance daily, whether or not the technology of compliance requires that.  Most people develop a routine for brushing their teeth, even though it is not an intrinsically fun activity.

That many providers have moved from the word "non-compliance" to "non-adherence" is not a good sign; it suggests the actual programs are not working.

This problem is acute in Mexico.  One method for that country would be to encourage religious conversions to more extreme points of view, which would limit drinking.

Even for the United States, this is one of our most significant national problems, although it receives very little press.  As the rate of diabetes rises, it will continue to grow in import.

What other ideas do you all have?

Kilkenomics

As Martin Lousteau, Argentina’s youngest-ever finance minister, told one audience: “It’s a very bad thing when economists start to be interesting.”

That was said at the recent Irish four-day comedy and economics festival, namely Kilkenomics.  Here are other reports from the festival.  One bit:

"Ireland needs a new credit rating agency. Moody & Poor," says Colm O'Regan, an IT consultant turned comedian.

And:

The economics festival features more than 20 events, with sessions including “The Best Way to Rob a Bank is to Own It,” and “What the Hell Just Happened.”

 Here are some YouTube videos from the festival; I have not culled through them.

Unsung development miracles?

Dani Rodrik writes:

Which are the countries that have improved their human development indicators the most since 1970 relative to their peers? You’d be surprised, as I was, to find that the top 10 is dominated not by East Asian superstars, but by Moslem countries: Oman, Indonesia, Saudi Arabia, Tunisia, Morocco, and Algeria. This year’s Human Development Report is full of neat analysis and results, including this one.

Leaving aside the oil exporting countries, the North African cases are particularly interesting. As Francisco Rodriguez and Emma Samman, two of the report’s authors, note, Tunisia, Morocco, and Algeria have experienced remarkable gains in life expectancy and educational attainment, leaving many Asian superstars in the dust. Only Tunisia among the three is a high growth country, underlining one of the report’s main findings that economic growth and human development often diverge significantly, even over as long a time frame as 40 years.

Haiti update: life on the Malthusian frontier

Several of them said, yes, they drank water from a river known to be contaminated with the cholera-causing bacteria. And, no, they don’t always have money to buy bottled water.

“We know there may be cholera in there, but sometimes it is all we have to drink,” said Alienne Cilencrieux, 24. “If we have Clorox, we pour some in and drink it. It tastes bad. Or we dig in the ground until we find water and drink that.”

Here is more.

Yuck markets in everything

There is a market in baby foreskins:

Because of this, they’re not tossed out with the rest of the medical waste after a birth. Instead, hospitals sell them to companies and institutions for a wide variety of uses. Companies will pay thousands of dollars for a single foreskin.

Some of the strangest purposes they’re put to:

  • Cosmetics: Foreskins are used to make high-end skin creams. The skin products contain fibroblasts grown on the foreskin and harvested from it. One foreskin can be used for decades to produce fancy face cream like the SkinMedica products hawked on Oprah.
  • Skin grafts: In addition to making products for skin, a baby’s foreskin can be turned into a skin graft for a burn victim. Because the cells are extremely flexible, they’re less likely to be rejected. Currently, this technology can be lifesaving in providing a real skin “band aid” to cover an open wound while a burn victim heals. Researchers at Harvard and Tufts are working on advanced skin replacements that use human foreskins.
  • Cosmetic testing: All those cruelty-free cosmetics you buy? Some of them are tested on foreskins. This yields better results, since they’re human skin. And it saves the lives of the rodents your shampoo would otherwise be tested on.

Does this make the hospital ever-so-slightly more interested in continuing the practice?  For the pointer I thank Andromeda.

Britain fact of the day

In 1960, the British drank 3.6 pints of wine per head per year; by 1971 they drank 7 pints, by 1973 9 pints, by 1975 11 pints and by 1980 almost 20 pints.  One obvious reason was that it was cheaper than ever, with the duty having been slashed when Britain joined the EEC; another was that people picked up the taste on holiday; a third was that wines were advertised more successfully, being associated with glamour, luxury, and ambition, and aimed particularly at young women.

That is from Dominic Sandbrook's excellent State of Emergency, The Way We Were: Britain, 1970-1974.