Category: Medicine

Markets in everything

Or should this post be titled "Department of Uh-Oh"?

Indonesia, which has had more human cases of avian flu than any other country, has stopped sending samples of the virus to the World Health Organization, apparently because it is negotiating a contract to sell the samples to an American vaccine company, a W.H.O. official said yesterday.  The strains of the H5N1 virus circulating in Indonesia are considered crucial to developing up-to-date vaccines and following mutations in the virus.

Here is the story.  At the very least, is it not better to release the information but require a payment of royalties from any company using it profitably?  Or since the virus has a 60-70 percent fatality rate in Indonesia, maybe they might go back to simply giving the information away…?

Here is further commentary, perhaps the Indonesians are resentful that they would not be able to afford any resulting vaccine.  If this entire episode does not convince you that IP law is out of control, I don’t know what would.

Department of Uh-Oh

Or should this post be called "Markets in Everything"?

…there is plenty of anecdotal evidence that Germany has become less attractive for people in fields like medicine, academic research and engineering.  Those who leave cite chronic unemployment, a rigid labor market, stifling bureaucracy, high taxes and the plodding economy – which, though better recently, still lags behind that of the United States.

Here is the full story, which is an object lesson in what happens if you don’t pay your doctors enough…

Department of Hmm…

But winners [from the Bush health care plan] could turn into losers with time.  Even people with policies under the cap could eventually hit the ceiling as health costs rise.  That’s because the cap would be indexed to general inflation  — not health care inflation, which has risen more rapidly in recent years.

That is from today’s Wall Street Journal, p.D3, "How Health Care Proposals Could Affect the Insured."  Here are some numbers on how much the two inflation rates differ; so is the Bush plan simply an eventual phase-out of this tax deduction?

Implementing Michael Kremer’s vaccines idea

…finance ministers from at least three Western countries are scheduled to meet in Rome next week to announce a pilot program for delivering next-generation vaccines more rapidly to poor nations.  An official for the GAVI Alliance, an international vaccines group, confirmed that the project would be the first step of a controversial plan to pay qualifying vaccine makers a higher price than they would ordinarily receive for their products in impoverished areas hard hit by infectious diseases.

Here is the full story.  Here is Alex on Kremer’s idea.

Paul Krugman on health care

…Basically, everyone agrees that health care is a messed-up sector. But
there are two opposing doctrines about what the problem is.

I believe — and the evidence, I think, supports this belief — that the
big problem is "adverse selection." An insurance plan offered to
everyone at the same rate would be a great deal for relatively sick
people, a poor deal for the healthy. So one of two things happens to
private insurance. Either plans go into the "adverse selection death
spiral," as sick people flock in, driving up rates, driving out more
healthy people, and so on. Or insurance companies spend a lot of the
money they receive in premiums screening out "high-risk" clients, so
that the system has huge overhead and the neediest cases are excluded.

The clean solution to this problem is for the government to provide
insurance to everyone. Other rich countries do that. So do we, for
older Americans, veterans, and others. Actually, government health
insurance is already bigger in America, in dollar terms, than private
insurance — it covers fewer people, but that’s because the elderly, who
cost more, are handled by the government.

Employment-based insurance is a distant second-best, but better than
nothing. Large employers, in particular, can spread risk widely,
creating the kind of risk pool that dies from adverse selection in the
individual market. And the tax preference for employer-based care, more
or less by accident, has helped sustain this imperfect fix — which is
why I’m highly skeptical of anything that might erode that preference.

What conservatives in the "consumer-directed" health movement believe,
however, is that the big problem is "moral hazard" — people consume too
much medical care, because someone else pays for it.

Now, this isn’t entirely wrong. People probably do undergo expensive
surgery with questionable effectiveness, and so on, because it’s not
out of pocket. Curbing that was supposed to be the point of managed
care. But managed care didn’t deliver, because people — rightly — don’t
trust private H.M.O.’s to make life and death decisions on their
behalf. Successful managed care only takes place in institutions like
the V.A. where there’s more trust in the institution’s motives.

The whole consumer-directed thing is, in my view, just at attempt to
avoid facing up to that failure. Rather than admit that private-sector
institutions aren’t any good at rationing, conservatives now say that
patients should be induced to ration their own care by being forced to
pay more out of pocket. And that’s where Bush’s attack on gold-plating
comes from: reduce the tax advantage of employer-based care, and
deductibles and co-pays might go up.

The trouble is that the big money is in stuff like heart operations or
other areas where (a) people can’t pay out of pocket in any case — they
must have insurance or go untreated — and (b) people really aren’t
sufficiently well informed to make the decisions. Yet the whole focus
of consumer-directed doctrine is on things like routine visits to
doctors’ offices and annual dental checkups. It’s going where the money
isn’t — because the advocates just can’t believe that markets aren’t
always the answer.

Now here’s the thing: in the name of consumer-directed health care
theory, Bush is proposing changes that would essentially encourage
people to move into the individual market — which wastes a lot of
money, and doesn’t and can’t work for those most in need — while
undermining the employer-based system, which isn’t wonderful but is
still essential. In particular, healthy high-income people would be
encouraged to drop out of employment-based plans, leaving behind a
sicker risk pool, driving up rates, and pushing employer-based care in
the direction of an adverse selection death spiral. The plan we’re
supposed to learn about tomorrow doesn’t sound big enough to have
catastrophic effects, but it’s a step in the wrong direction.

I might add I don’t think adverse selection is the major problem, nor for that matter would I cite moral hazard.  I would cite the (temporary?) difficulty in evaluating procedures and outcomes, plus consumer irrationality, noting those same consumers still could be rational in choosing insurance plans, even if they screw up their on-the-spot medical decisions.  In my preferred but still imaginary model, consumers rationally choose insurance companies ex ante, those insurance companies make and fund key medical decisions ex post, and other third party intermediaries keep those insurance companies honest.

The new Bush health care plan

Jonathan Zasloff writes:

Bush plans to pay for it not by efficiencies, but rather by restricting the benefit packages of the already insured, through the deductibility cap.  I’m sure that there are some extraordinarily lavish plans out there, but is there any serious policy justification for this way to go?  If anything, this seems to be a recipe for business to delete coverage, and throwing more people into the individual market.

Paul Krugman is very negative.  Arnold Kling loves the plan.  Greg Mankiw isn’t complaining.  Ezra Klein says it is better than nothing.

My feelings are mixed, but my view is closest to Zasloff.  In the short run the plan gives more coverage to the people who need it most, while avoiding the mistakes of recent state-level plans.  That doesn’t sound so bad.  (By the way, has anyone serious done a study of subsidy incidence for health insurance tax credits?)

But I cannot side with Arnold Kling’s view that third-party payment lies at the root of America’s health care problem.  Our tolerance for anxiety is sufficiently low that I expect the future to bring more and more insurance of many kinds, whether from the private sector or from government.  The cost of this insurance, in terms of induced inefficiencies, will be high but a secure health care situation is one of the things in life that alone can make a difference between happiness and misery. 

Furthermore given our "political irrationality" (my apologies to many readers, such as Matt and Ezra, but I am referring to your tendency, yes yours, to want national health insurance), there is a positive external benefit attached to private health insurance, above and beyond the gains to the insured.  How far would the Democratic health care agenda get without "45 million uninsured"?

The goal is to get (virtually) everyone insured and keep them insured for as long as possible, and yes I know that eventually means health care at 20 percent of gdp and lots of people getting screwed out of just claims for reimbursement.  It is simply the best we can do, and for that reason I don’t want to tax private health plans.

The ambitious long-run program should be to restructure the insurance industry –through a judicious mix of regulation and deregulation — to encourage competition across service quality rather than competition across cost-shifting.  Frankly I have no idea how to do that but no one has ever convinced me it is impossible or utopian.  We simply need better incentives for evaluating the performance of our insurance companies, and better ways of evaluating the performance of our doctors and hospitals.  I’m not going to call that small potatoes, but compared to how health care has evolved since say 1920 it is not asking for the moon.  That is one reason why I don’t want to lock into total government control of the health care market for the next five generations or more.

In the shorter run, I expect medical tourism to continue to grow in importance, including possibly cruise ships. 

Last week I had my first physical in twenty years, and it seemed no different from visiting a witch doctor who makes you feel better by shaking the rattle.

Abigal Alliance v. FDA

In May I wrote about the stunning ruling by the DC Circuit Court of Appeals that dying patients have
a due process right to access drugs once they have been through
FDA approved safety trials.  (See the link for some amazing quotes from the ruling.)  The case is now on appeal and possibly headed to the Supreme Court and I am thrilled to have a role.

I am one of the authors of an Amici Curiae brief, a friend of the court brief.  The DC Circuit Court of Appeals made it’s ruling based on the right to control one’s own body:

A right of control over one’s body has deep roots in the common law. The
venerable commentator on the common law William Blackstone wrote that the right
to “personal security” includes “a person’s legal and uninterrupted enjoyment
of his life, his limbs, his body, [and] his health,”…barring a terminally ill
patient from use of a potentially life-saving treatment impinges on this right
of self-preservation.

But the court noted that a patient’s fundamental right could be rebutted if the FDA can show
that its policy of barring access to these drugs is "narrowly tailored
to serve
a compelling governmental interest."

The brief, submitted by Jack Calfee, Dan Klein, Sam Peltzman, Benjamin Zycher and myself, argues that barring access to experimental drugs does not serve a compelling governmental interest and in fact reduces patient welfare.

Unfortunately, I do not think that the Abigail Alliance can win the case; recognizing the rights that the DC Circuit of Appeals recognized would be too big a blow to our nanny state.  Nevertheless, if we can help the court to be aware of some of the tradeoffs involved with drug regulation that will be valuable and it’s also great to be on a paper with Peltzman.

Thanks also to Ted Frank and others for acting as Counsel for the Amici Economists.

I’ve been wondering how to title this post

Here is the news report (and more):

State prison inmates, particularly blacks, are living longer on average than people on the outside, the government said Sunday.  Inmates in state prisons are dying at an average yearly rate of 250 per 100,000, according to the latest figures reported to the Justice Department by state prison officials.  By comparison, the overall population of people between age 15 and 64 is dying at a rate of 308 a year.

For black inmates, the rate was 57 percent lower than among the overall black population – 206 versus 484.  But white and Hispanic prisoners both had death rates slightly above their counterparts in the overall population.

The post titles I had considered were:

So is this just an age effect?

Government health care works after all

Is the real world so nasty?

Involuntary paternalism

Prison is better than trans-fats

I genuinely wish to know

Matt Y. writes:

…the forces of progress are fated to an arduous generational struggle against the health care industry [TC: not just private insurance?] and there’s not much to be done about it.

Now I can understand the view that market forces are doomed to failure in the health sector and that government is the best of a bad set of choices.  That is not my opinion, but I grasp why someone might believe that.  I wish to ask all you single-payer advocates — in absolute terms — how good (bad) do you think it will be?

Let’s rate "the paper clip industry" as a 9 out of 10.  Paper clips are pretty cheap and usually they work.  Let’s rate the better federal agencies as a 6.5 out of 10.  Let’s rate HUD as a 2.5 out of ten.

How will national health insurance do, keeping in mind that U.S. doctors do not wish to have their wages cut, Americans want the right to choose their doctors, and the U.S. is a huge, messy, decentralized, federalistic country with lots of cheats and massive, hard-to-eradicate inequalities at many different levels.

I give it about a 3.  How about you?

And what are your views on the likelihood of today’s flawed system improving without drastic single-payer reforms?

Terminating private health insurance: inadequate counterincentives edition

[California] businesses with 10 or more workers that choose not to offer [health insurance] coverage would be required to pay 4 percent of their total Social Security wages to a state fund that would be created to subsidize the purchase of coverage by the working uninsured.

…The plan…would also require doctors to pay 2 percent and hospitals 4 percent of their revenues to help cover higher reimbursements for those who treat patients enrolled in Medi-Cal, the state’s Medicaid program.

Here is the full story.  I can’t imagine that the state of California has the fiscal wherewithal to deal with the inevitable results of these incentives.

The scariest sentence I read today

The parents of a severely mentally-disabled girl defended their decision to use medical treatments
to keep her child sized for the rest of her life.

Here is more scary stuff, and it is scary whether or not you think this is justified. 

Addendum: Here is a picture.  Here is the parents’ treatment blog.  They write:

what most people thought, the decision to pursue the “Ashley Treatment”
was not a difficult one.  Ashley will be a lot more physically
comfortable free of menstrual cramps, free of the discomfort associated
with large and fully-developed breasts, and with a smaller, lighter
body that is better suited to constant lying down and is easier to be
moved around.