Category: Medicine
Choice-based Medicare cost controls
Let’s say it’s 2027 and I’ve just turned 65. I fill out a Medicare application on-line and opt for a plan with superior heart coverage (my father died of a heart attack), not too much knee coverage and physical therapy (my job doesn’t require heavy lifting), no cancer heroics (my mother turned them down and I wish to follow her example), and lots of long-term disability.
Is that so terrible an approach? Is it obviously worse than having the Medicare Advisory Board make all of those choices for me?
Over the next few days you will read a lot of “downgrade and dismiss” directed at Paul Ryan and his plan and indeed it is quite possible his proposal is not a workable one (I haven’t read it yet). But don’t fall for the downgrade and dismiss bait, keep on returning to the question of how much individual choice should be allowed into health care cost control. Why not divvy up the cost control work between the Board and some degree of individual choice across Medicare benefits? You don’t have to combine that choice with the cost-increasing aspects of Medicare Advantage-like plans.
Many ACA defenders simply do not want to enter into a debate where the framing is “we’re all for cost control, when it comes to Medicare benefit selection it’s a question of government board vs. individual choice.”
I can think of a few reasons why individual choice will sometimes fail as a method of cost control:
1. Individuals have serious misconceptions about the science, or the badness of a particular condition, even in light of government or other third-party advice. Or perhaps individuals simply do not understand the nature of all of the choices at hand.
2. Perhaps an individual will choose “no coverage for lung cancer,” but the government cannot precommit to the outcome of no coverage. Of course as cost control becomes more pressing, we’ll have to learn precommitment for at least some issues, one way or the other, so this cannot be a decisive objection. The entire premise behind the discussion is that we cannot cover all treatments through government subsidy.
3. Over time, perhaps a government Board can rebalance the mix of coverage better than an individual can. People age, possibly lose some mental faculties, science advances, costs change, and so on.
Those are good arguments. They are good arguments for a mixed system. They are not good arguments for ruling out all individual choice of benefits. They are not good arguments for ruling out a scenario like that outlined in the first paragraph of this blog post.
Here is Megan McArdle on the difference between boards and individual choice:
It seems quite likely to me that vouchers are going to be better at controlling health care cost growth than a central committee. Every committee decision that cuts off a potentially useful treatment (and I’m afraid it can’t all be back surgery and hormone replacement therapy) will trigger a lobbying explosion from affected groups. Each treatment is a decision with a small marginal cost to the taxpayer; it’s in aggregate that they become expensive. Which means that the congressional tendency is always going to be to override–and while there are supposed to be structural barriers against this in the bill, they aren’t very strong . . .
Whereas if you put the decision about what treatments to cover in the hands of the patient, the lobbying you face is to increase the overall value of the voucher. To be sure, this will have a larger (and therefore more powerful) group behind it. But it will also come with an enormous pricetag, making it much harder for our politicians to rationalize the decision.
There are lots of comments from Reihan here. Ezra associates the Ryan reforms with Medicare Advantage. Maybe so, and maybe that’s bad, but we return to how much individual choice should we allow into health care cost control, with or without the cost-increasing aspects of the Ryan plan.
We shouldn’t let “downgrade and dismiss” distract our attention from that fundamental question about individual choice.
General principles for evaluating Medicare reforms
You’ll be hearing lots about the Paul Ryan entitlement reform proposals, but here are a few more general points to keep in mind:
1. As health care develops, it becomes impossible for Medicare (or Medicaid) to cover every treatment.
2. One reform option has government experts rule which treatments are eligible for coverage, with varying degrees of Congressional input.
3. Another option is to let individuals choose in advance which treatments they will be covered for, and which not.
4. #3 can but need not be bundled with voucher and privatization ideas. Without privatization, the government offers people different Medicare packages and they choose one over the others. Government may also recommend a Medicare benefits package for an individual, without requiring that it be chosen.
5. Most plausible policy reforms involve some mix of expert restrictions (#2 )and individual choices (#3) and the real question is to figure out the right mix of the two approaches. When evaluating #2, do keep in mind the potential input of Congress, if only as a background threat.
6. Does individual choice (#3) make more sense for nursing homes and dental care (preferences really matter?), but maybe expert judgment (#2) makes more sense for cancer treatments (expertise really matters?)? I am not endorsing that comparison, it is simply an example to illustrate the issue at hand.
7. If #5 isn’t being addressed, you’re probably just getting polemics. Obligatory citation of David Hume, commit it to the flames, etc.
The Matchmaker
The Boston Globe’s Leon Neyfakh has a good piece on Alvin Roth:
Roth has always been interested in the idea that sophisticated theories can be used to solve practical problems. As a graduate student at Stanford University, he earned a doctorate in operations research, which uses math to help organizations run more smoothly. Roth was just 19 when he started at Stanford, having quit high school without graduating at the age of 16 and finished Columbia University in three years. At just 22, he got a job as an assistant professor at the University of Illinois, and in 1977, at just 25, he was granted tenure there….
In the years since, Roth has emerged as a rare figure in the academic world: a theorist willing to dive into real-world problems and fix them. After helping the med students, he designed a better way to assign children to public schools — the system now used by both Boston and New York. He also helped invent a system for matching kidney donors with patients, dramatically increasing the number of donations that take place each year. More recently, he and one of his students have been talking with Teach for America about improving the system it uses to deploy volunteers around the country.
… Inspired by Roth’s work, these rising economists are also setting their sights on real-world problems. Some are looking at dating websites; others are interested in how universities could do better at scheduling their students’ classes. Like Roth, all of them envision a world in which economists, as unlikely as it may seem, are recognized as society’s mechanics.
One minor note, kidney exchanges are great but I wouldn’t describe the increases as “dramatic.” We will need, in addition, other ideas to alleviate the shortage of transplant organs.
Food Safety and Culture
Scientific American has an excerpt from Myhrvold, Young and Bilet’s magnum opus, Modernist Cuisine, in which they discusses the often arbitrary, subjective and culturally bound nature of “food safety” rules and practices.
In decades past, pork was intrinsically less safe than other meats because of muscle infiltration by Trichinella and surface contamination from fecal-borne pathogens like Salmonella and Clostridium perfringens . As a result, people learned to tolerate overcooked pork, and farms raised pigs with increasing amounts of fat—far more fat than is typical in the wild ancestors of pigs such as wild boar. The extra fat helped to keep the meat moist when it was overcooked.
Since then… producers have vastly reduced the risk of contamination through preventive practices on the farm and in meat-processing facilities. Eventually the FDA relaxed the cooking requirements for pork; they are now no different than those for other meats. The irony is that few people noticed—culinary professionals and cookbook authors included….
After decades of consuming overcooked pork by necessity, the American public has little appetite for rare pork; it isn’t considered traditional. With a lack of cultural pressure or agitation for change by industry groups, the new standards are largely ignored, and many new publications leave the old cooking recommendations intact.
Clearly, cultural and political factors impinge on decisions about food safety. If you doubt that, note the contrast between the standards applied to pork and those applied to beef. Many people love rare steak or raw beef served as carpaccio or steak tartare, and in the United States alone, millions of people safely eat beef products, whether raw, rare, or well-done. Beef is part of the national culture, and any attempt to outlaw rare or raw steak in the United States would face an immense cultural and political backlash from both the consumers and the producers of beef.
…Cultural and political factors also explain why cheese made from raw milk is considered safe in France yet viewed with great skepticism in the United States. Traditional cheese-making techniques, used correctly and with proper quality controls, eliminate pathogens without the need for milk pasteurization. Millions of people safely consume raw milk cheese in France, and any call to ban such a fundamental part of French culture would meet with enormous resistance there….
Raw milk cheese aged less than 60 days cannot be imported into the United States and cannot legally cross U.S. state lines. Yet in 24 of the 50 states, it is perfectly legal to make, sell, and consume raw milk cheeses within the state. In most of Canada raw milk cheese is banned, but in the province of Quebec it is legal.
One point they don’t note is that there may be multiple equilibria–that is, it may be more dangerous to produce raw milk cheese in a country or region without a history of producing raw milk cheese than elsewhere. Still, this is no reason we shouldn’t be eating more horse.
Makena and the Orphan Drug Act
Makena is a drug used for premature birth therapy. It’s been available off-label for a long-time but KV pharmaceuticals ran a clinical trial and applied for FDA approval under the Orphan Drug Act (ODA). Under the ODA, KV is entitled to seven years of market exclusivity, this is even stronger than a patent because it gives KV the right to exclude from the market any drugs (not just similar drugs) that treat the same condition.
Now that KV has a monopoly—enforced against compounding pharmacies by threats from the FDA—the price will rise from about $10 to a listed price of $1,500. Naturally a lot of people are outraged.
In The Blessed Monopolies (pdf) I explained how the ODA and similar rules such as pediatric exclusivity can be gamed by pharmaceutical firms for big profits. The early AIDS drug AZT managed to get market exclusivity under the ODA, for example, because it appeared when the patient population was below 200,000, thus meeting ODA requirements, even though everyone knew the patient population was expanding rapidly.
Once a drug is off-patent, however, there is very little incentive to study it further or to run the clinical trials necessary to get FDA approval. Although the drug has been used off-label for some time (another example of the importance of off-label prescribing) a decent clinical trial still has considerable value. The problem is that as with patents there is very little connection between the effort required to get exclusivity under the ODA and the potential profits (see my paper Patent Theory v. Patent Law).
Despite my skepticism of the ODA, however, I was convinced by Lichtenberg and Waldfogel’s Does Misery Love Company that the ODA as a whole has done some good. Lichtenberg and Waldfogel find that after the ODA was passed (but not before) mortality rates for people with orphan diseases decreased faster than mortality rates for those with more common diseases. The decrease in mortality was consistent with the introduction of more new drugs for orphan diseases.
The important point is that like patents the ODA should be evaluated as a rule and not on a case-by-case basis. I am all for patent reform and FDA/ODA reform but this is truly a case where we don’t want to throw the baby out with the bathwater.
Hat tip: Eddie W.
Addendum: See also Derek Lowe who, as usual, offers intelligent comments.
One account of what political elections are for
From David Brooks's new blog:
What do you do after your party wins an election? In a forthcoming study for the journal Computers in Human Behavior, Patrick Markey and Charlotte Markey compared Internet searches in red and blue states after the 2006 and 2010 elections. They found that the number of searchers for pornography was much higher right after the 2010 election (a big G.O.P. year) than after 2006 (a big Democratic year). Conversely, people in blue states searched for porn at much higher rates after 2006 than after 2010. One explanation is this: After winning a vicarious status competition, people (predominantly men, I guess) tend to seek out pornography.
And David's new book is here.
Sentences to ponder
My guess is that if you want to improve health outcomes in the United States, ignore health insurance and focus on literacy.
That is from Arnold Kling.
The new federalism, New Hampshire style
A lot of governors don't want high-speed rail and at least one state is wondering whether it wants a new hospital:
New Hampshire Public Radio ran a story yesterday about Governor Lynch's request that hospitals in the state stop building new facilities. Normally, governors never miss an opportunity to encourage new business in their state, because in most markets, greater investment leads to better services or lower prices. Finally, policy makers understand that the normal rules don't apply in health care:
[T]hese facilities are driving up utilization and driving up health care costs. Those are costs that we all see in our ever-increasing health insurance premiums. To that, I say enough.
That is from Andrew Samwick. This shows how deeply the current system of both health care finance and American federalism is broken. It is not that the governor was suddenly persuaded by…Robin Hanson. Instead, the shadow value of "money to spend as the governor wants it spent" is rising rapidly and old political equilibria are falling away, in Wisconsin too.
The Great Stagnation in medicine
Here is one bit from a very good Robert Gordon essay (which I will cover again in a while):
…if one starts down the road of comparing changes in life expectancy, the yearly rate of increase in life expectancy at birth during 1900–50, resulting in substantial part from the inventions of the Second Industrial Revolution, was 0.72 percent per year, the 0.24 percent annual rate during 1950–95.
James Le Fanu, in his 2000 history of modern medicine, lists definitive moments of modern medicine. In the 1940s there are six such moments, seven moments in the 1950s, six moments in the 1960s, a moment in 1970 and 1971 each, and from 1973-1998, a twenty-five year period, there are only seven moments in total.
For his "Dates of the discovery and sources of the more important antibiotics," the list starts in 1929-1940 with penicillin and ends in…1963, with Gentamicin.
Ezra has a very good post on penicillin. Megan has a very good post and piece on the drying up of the pharmaceutical pipeline. Andrew Jack has a very good and scary piece on the withering of pharmaceuticals innovation in the UK.
As Le Fanu writes: "Currently most medical researchers would concede that progress has slowed in recent years…"
As an aside, this has a number of political economy implications for health care reform, none of them cheery. In both Washington and in the blogosphere, we're very focused on insurance and coverage issues, but is not the innovation pipeline more important? Does it receive one-tenth the discussion? One-fiftieth? Does a slow pipeline mean that health care policy is doomed to be unpopular?
Quick quiz: is health care a growing or a shrinking part of the U.S. economy?
Budget sentences to ponder
The regression coefficient of -0.07 suggests that in countries where revenues as a share of GDP were 10 percentage points lower in 1979, health care spending increased as a share of GDP by 0.7 less in the next 30 years. This association is consistent with the hypothesis that high tax rates limit the further growth of public contributions to health spending because of the much larger economic costs…and because of political pressures against high tax rates, a result also found in a cross-country study…
That is from the scary paper by Katherine Baicker and Jonathan Skinner, "Health Care Spending Growth and the Future of U.S. Taxes." (Can anyone find an ungated copy? Can we all say a hail to James M. Buchanan?)
As for today's announced budget, Kevin Drum serves up some relevant remarks.
Malaria and IQ
The figure below, from Bill Gates's annual letter, shows that countries with a higher disease burden have lower average IQs. The theory is that building brains and fighting disease are metabolically costly so more effort to fend disease diverts resources from brain development lowering IQ.
Tyler blogged this research earlier writing "I'm not sure the authors have a very good test against alternative hypotheses, but still a correlation remains after making some appropriate adjustments."
Further evidence on causality is given by Atheendar Venkataramani in Early Life Exposure to Malaria and Cognition and Skills in Adulthood. Venkataramani finds that men born after widespread malaria eradication began in Mexico in the late 1950s have higher IQs (Raven scores) and are more likely to work in white collar jobs than men born shortly before eradication efforts began. Importantly, the effect is larger for men born in those states that began with high exposure to malaria.
Sentences to ponder, the progress of health
Even in health care the big explosion was 1900 to the 1960s, when life expectancy rose from 47 (only modestly above Roman levels), to about 70 (only modestly below current levels.)
That is from Scott Sumner and the post is interesting throughout, also see Scott's additions in the comments. It is odd that many people are citing health improvements as evidence against my arguments for a slowdown in progress for the median individual, when, as Scott's quotation indicates, the opposite is more likely the case. Scott is a very literal reader, in the best sense of that term, and thus he is careful not to confuse my claims with weaker and less defensible versions of related ideas (and there are indeed many of those).
Here is Michael Mandel, arguing that the innovation slowdown starts in 1998-2000, rather than the early to mid 1970s, and attributing it largely on the biosciences.
Racial stereotypes and death statistics
Andrew Noymer, Andrew Penner, and Allya Saperstein report:
Recent research suggests racial classification is responsive to social stereotypes, but how this affects racial classification in national vital statistics is unknown. This study examines whether cause of death influences racial classification on death certificates. We analyze the racial classifications from a nationally representative sample of death certificates and subsequent interviews with the decedents' next of kin and find notable discrepancies between the two racial classifications by cause of death. Cirrhosis decedents are more likely to be recorded as American Indian on their death certificates, and homicide victims are more likely to be recorded as Black; these results remain net of controls for followback survey racial classification, indicating that the relationship we reveal is not simply a restatement of the fact that these causes of death are more prevalent among certain groups. Our findings suggest that seemingly non-racial characteristics, such as cause of death, affect how people are racially perceived by others and thus shape U.S. official statistics.
Interview with Mark Pauly
Via Ezra, with Ezra:
Tell me about your involvement in the development of the individual mandate.
I was involved in developing a plan for the George H.W. Bush administration…One feature was the individual mandate. The purpose of it was to round up the stragglers who wouldn’t be brought in by subsidies. We weren’t focused on bringing in high risks, which is what they're focused on now. We published the plan in Health Affairs in 1991. The Heritage Foundation was working on something similar at the time.
What was the reaction like after you released it?
There was some interest from Republicans. I don’t recall whether they formally wrote a bill or just floated it as an idea, but Democrats in Congress said it was "dead on arrival." So that was the end of my 15 minutes.
Does disability insurance discourage employment?
Jagadeesh Gokhale writes:
Jobs lost during the recent recession caused a deluge of applications to the Social Security Disability Insurance program – more than 6 million each year in 2009 and 2010 – and threw into relief the fact that the SSDI program is structurally unsound.
The current applications surge will accelerate the exhaustion of SSDI's trust fund and will force Congress to have to choose among two unpalatable options – increase SSDI payroll taxes or reduce benefit allowance rates.
But that is not enough. If the particularly vulnerable population the SSDI is designed to serve is to be protected, while preserving incentives to work, the program has to be radically restructured.
Even in normal economic times, those with marginally physical or mental impairments apply in the hope of acquiring disabled status under SSDI. Among those already receiving SSDI benefits, the incentive to return to the work force is very poor.
Revealing one's ability to work, especially if it's in a low-paid occupation, could cause permanent loss of SSDI benefits. Strong work disincentives under SSDI result from its eligibility standard that guides benefit awards: an inability to engage in substantial gainful activity for 12 months or more.
Is this an underreported story? What's the success rate on coming out of disability and finding a decent job? What percent of the disabled, permanently unemployed are truly unable to engage in productive work? I was put onto this question by a tip from Larry Katz.