Ever notice that the politically correct attack any discussion of IQ as unscientific and racist, until the discussion turns to lead? Merely mention lead and the liberals will readily quote studies (for once correctly) showing that even low levels of lead can reduce the IQ of children by 4 to 7 points. For some reason, the objections of test bias, multiple intelligences, and racism disappear in this context.
Here is a New York Times article noting that most of sub-Saharan Africa continues to use leaded gasoline, despite findings from Africa and elsewhere that lead causes higher levels of strokes, heart attacks and other ailments as well as reducing children’s IQ.
Would it be racist to suggest that the recent trend to ban leaded gasoline in Africa could eventually lead to higher economic growth as well as better health?
The headline in the Washington Post yesterday read “FDA Approves Artificial Heart for Those Awaiting Transplant.” The language annoys me – it sounds as if the FDA gave a Good Housekeeping Seal of Approval to the artificial heart. Consider how much clearer the tradeoffs of medical policy would be if instead the headline read, “FDA lifts ban on artificial hearts for those awaiting transplant.”
Thanks to Dan Klein, my co-author on FDAReview.org, who first alerted me to these issues.
Sorry, I am not that gullible.
President Bush was correct when he said that liability risk is one factor in the recurrent shortage of vaccines. Based on a post by Mark Kleiman, suggesting that flu vaccines are immune from liability due to the Vaccine Injury Compensation Program, Brad De Long called Bush’s claim an “eternal lie.” To his credit, Kleiman (but not DeLong) quickly retracted his post when others pointed out that the VICP applies only to pediatric vaccines.
Liability is not the only issue, however. Costly FDA regulations and requirements, for example to remove thimerosal from vaccines despite no evidence of safety problems, have pushed firms out of the industry. See this paper in the The Independent Review (I am an assistant editor) for more on these regulations and their consequences.
A further problem is that the federal government is the major purchaser of vaccines, although not the flu vaccine, and it uses its monopsony powers and the law to require companies to sell at low prices. Firms have left the industry because they are squeezed on one end by regulation and on the other by low prices and, for vaccines like the flu vaccine not covered by VICP, potential liability. Note that even if the prices are high enough to earn the company a modest profit the point is that they are not high enough to make it worthwhile to make a surplus of vaccine that can be sold in the event of a contamination problem, as has happened this year. If the firms can’t price high during a shortage then there is no incentive to plan for a shortage.
Even without legal price caps there are significant disincentives to high prices. Here is a CDC spokesperson (link to audio file) on recent price increases:
Shame on the people who are price gouging. This is a reprehensible thing to be doing. I think an immoral thing.
Is it any wonder that firms don’t want in on this market?
Henry Miller, a former head of the FDA’s biotechnology division, summarizes well:
The fundamental problem is that government regulatory policies and what amounts to price controls discourage companies from investing aggressively to develop new vaccines. Producers have abandoned the field in droves….Although their social value is high, their economic value to pharmaceutical companies is low because of vaccines’ low return on investment and the exposure to legal liability they bring manufacturers….
Moreover, the FDA has a history of removing safe and effective vaccines from the market based merely on perceptions of excessive side effects — a prospect that terrifies manufacturers.
We need a fundamental change in mind-set: The rewards for creating, testing and producing vaccines must become commensurate with their benefits to society, as is the case for therapeutic pharmaceuticals.
Read Henry’s article for more on dealing with the problem today, (he notes, for example, that it may be possible to dilute current stocks and still maintain good effectiveness). Also, as Tyler reported last year, simply targeting vaccines to at-risk people is not necessarily the best approach. A better approach is to target super-spreaders, people who may not be at great risk themselves but who can and will spread it to many others.
Tomorrow: Vaccines: The Long Run.
Here from last night’s debate, is President Bush making a good case against government-run health care:
I think government- run health will lead to poor-quality health, will lead to rationing, will lead to less choice.
Once a health-care program ends up in a line item in the federal government budget, it leads to more controls.
And just look at other countries that have tried to have federally controlled health care. They have poor-quality health care.
Our health-care system is the envy of the world because we believe in making sure that the decisions are made by doctors and patients, not by officials in the nation’s capital.
And what does he say less than two minutes later?
We’ve increased VA funding by $22 billion in the four years since I’ve been president. That’s twice the amount that my predecessor increased VA funding.
Of course we’re meeting our obligation to our veterans, and the veterans know that.
We’re expanding veterans’ health care throughout the country. We’re aligning facilities where the veterans live now. Veterans are getting very good health care under my administration…
True, you can’t blame him much for the flip-flop – it’s what the public wants to hear. How many people even noticed the glaring contradiction? I suppose that on this issue I’d rather have flip-flop than all flop.
In my recent post on pharmaceutical regulation I wrote:
In the pharmaceutical market the major costs are all fixed costs (they don’t vary much with market size) so profit =P*Q-F. Acemoglu and Linn look at changes in Q but a 1% change in P has exactly the same effects on profits, and thus presumably on R&D, as a 1% change in Q.
But as Bernie Yomtov pointed out to me a reduction in P will increase Q. Ugh, an economist who has to be reminded about the law of demand. Embarrassing. The argument goes through if demand is quite inelastic which makes sense for a lot of drugs given that the price to the final consumer is low to begin with due to insurance – nevertheless the result is not so clean. Indeed, because of the envelope theorem a small change in P will have only a very small change in profits. Sadly, I teach this to my students regularly. Did I mention that I have had the flu this week?
How much would a 10% reduction in price reduce pharmaceutical research and development? That is the key question in debates about reimportation of pharmaceuticals from Canada, price controls, and using the power of Medicare to bargain with pharmaceutical companies. In a recent paper from the Quarterly Journal of Economics, Daron Acemoglu and Joshua Linn suggest an answer.
Acemoglu and Linn’s paper is formally about a different issue; the effect of market size on innovation. What they find is that a 1 percent increase in the potential market size for a drug leads to an approximately 4 percent increase in the growth rate of new drugs in that category. In other words, if you are sick it is better to be sick with a common disease because the larger the potential market the more pharmaceutical firms will be willing to invest in research and development. Misery loves company.
Although they don’t mention it, this finding has implications for price controls. In the pharmaceutical market the major costs are all fixed costs (they don’t vary much with market size) so profit =P*Q-F. Acemoglu and Linn look at changes in Q but a 1% change in P has exactly the same effects on profits, and thus presumably on R&D, as a 1% change in Q.
[I no longer think the above is correct but I leave it here for the historical record, see My goof.]
We can expect, therefore, that a 1% reduction in price will reduce the growth rate of new drug entries by 4% and a 10% reduction in price will reduce new drug entries by 40%. That is a huge effect. I suspect that the authors have overestimated the effect but even if it were one-half the size would you be willing to trade a 10% reduction in price for a 20% reduction in the growth rate of new drugs? No one who understands what these numbers mean would think that is a good deal.
Why does private health insurance perform so badly in holding down costs? (Here is one story.) I can think of a few hypotheses:
1. Medical ideology portrays doctors as a priestly caste, accountable to no one.
2. The observed cost increases are driven primarily by government reimbursements and purchases.
3. The tax-free nature of employer-supplied insurance benefits encourages wantonness. (TC: Why? You can subsidize the purchase of apples, that doesn’t mean apples will be produced inefficiently or at “excess cost” for that level of apple output.)
4. The tax system discourages insurance policies with higher copayments. (TC: But if copayments are so great, companies today could offer higher-valued benefits along other dimensions, while increasing the copayment rate.)
5. Malpractice suits. This one is true for sure, but put it aside since the problem goes much further.
The most plausible answer is:
6. It is hard to contract in advance for which services should be covered. If you let everything be covered, costs skyrocket. If you allow for “outs,” insurance companies will use these loopholes to cut off high cost patients, thereby eliminating the benefits of insurance.
But why should this be such an insurmountable problem? Why can’t impartial third-party arbitrators arrive at a coverage solution that is reasonably efficient? After all arbitrators settle millions of legal disputes, issues where conflicts of interest could not be more pronounced. Or imagine third-parties that evaluates whether an insurance company covers reasonable expenses or instead screws over its customers?
Yes this does mean a cost-monitoring bureaucracy. But surely under all health care systems someone must decide which treatments are worthwhile or not. Why cannot markets allocate this function to the least cost decider? Why does the usual solution — intermediation — appear to be working so badly?
Inquiring minds wish to know. And simply citing the very large role for government in the American system does not do the trick. Here is one Cato account, you can agree with many of the points but it doesn’t answer my question. Here are some broader market-oriented links.
And this is why I find it so hard to come up with a good plan for health care reform. If we don’t understand why private health insurance functions so badly in our mixed system, we won’t understand how to fix things.
1. Over the last year, six California health plans have been monitoring the performance of 45,000 doctors. The top performers will split a bonus pool of $40 to $60 million
2. 35 health plans, covering some 30 million patients, now tie doctor bonuses to performance. Preventive care and measure to encourage “patient follow-up” receive special rewards.
3. Bonus-based coverage is expected to double in size over the next year.
4. Some experts predict that pay-for-performance eventually will account for 20% to 30% of what the federal government pays health care providers.
The insurance companies feel that better doctor performance will lower their long-run costs. Many doctors don’t like these incentives. Their financial risk is increased, and they cannot always control how well the patient sticks to the prescribed regimen. Still, if greater medical skill does not show up in the numbers, over a reasonably large sample of patients, why do we spend so much time and money educating doctors?
I predict that as information technology progresses, and performance becomes easier to measure, the American economy will resort to many more bonuses of this type, across many professions.
Here is the story, WSJ subscription and password required.
By the way, regular MR readers will not be surprised to learn who first wrote up the idea of rewarding doctors for superior performance: our ever-inventive colleague Robin Hanson. More recently Harvard economist David Cutler has promoted the idea as well.
For those who care: Here is a thorough AEI estimate of the cost impacts of the Kerry and Bush health care plans. If you are concerned about our fiscal future, this makes for scary reading.
Reciting the Iliad could have epic effects on your health. German physiologists have recently shown that such poetry can get your heart beating in time with your breaths. This synchronization may improve gas exchange in the lungs as well as the body’s sensitivity and responsiveness to blood pressure changes.
The poem’s use of hexameter — six rhythmic units per line — is seen as especially important to this result.
Here is one brief account, see also the October issue of Scientific American, p.29.
The Canadian health care system is falling apart. Bill Binfet needs both knees replaced. He waited 4 months to get an appointment with a specialist who then put him 290th on a waiting list. It’s been a year and still no surgery despite the fact that his arthritis is now so bad he has bone grinding on bone.
In desperation, Binfet has placed an ad in the local paper offering to buy someone else’s place on the waiting list. The provincial health care minister tut-tuts and says “it would be unethical for a doctor to trade places on a surgical wait list for an exchange of money.”
But as Colby Cosh points out that’s not what Binfet proposes:
…the established bioethics of medicare – whether you approve of them in general, or not – forbid us from allowing patients to queue-jump using inducements to physicians. There is a theoretical hazard, the story goes, that too much of that sort of thing would cause the best doctors to abandon public-funded practice altogether. Fair enough. But Binfet’s offer creates no such danger. He proposes a zero-sum, wholly voluntary exchange between patients for access to the rationed, public, monopoly service. Where’s the ethical problem?
I agree, adding only that what Binfet proposes is positive sum not zero-sum! Binfet will be better off, the recipient of the cash will be better off and no one will be worse off. Contrary to the assertions of economist’s, however, even Pareto optimal policies are sometimes opposed. Try it out on your students.
Thanks to Eric Crampton for the pointer.
The HSA idea gives you a tax-free account for medical expenses but requires purchase of a high-deductible health care plan (above $1000 for individuals and $2000 for families, in most cases). And when age 65 comes, you can use the money for Medicare premiums or simply pull it out and pay standard rates of taxation. Bush packaged this innovation with the Medicare drug prescription bill. The accounts are now rising in popularity:
1. About twenty major financial institutions are now marketing HSAs. About fifty insurers have introduced corresponding high-deductible health care policies.
2. 81 percent of large (>20,000) employers expect to offer the accounts by 2006.
3. The Treasury has recently clarified what kind of expenses the plans can be used for.
4. One Congressional spokesman expects one million HSA accounts by 2004 and three million by 2013.
My take: The number of accounts will not be large enough to affect health care costs in the foreseeable future. So we can forget about macro changes and evaluate the micro incentives on their own merits.
In general I favor incentives to save, although I would remove current disincentives before adding on a new tax benefit.
Should the government subsidize high-deductible insurance policies? Probably not in the abstract. Of course this subsidy may offset the tax advantages of low-deductible plans, but again a simpler solution is available, namely to eliminate the original distortion.
Finally let us say that HSAs were soon to be much more common. What would the macro effects be on health care costs? I predict the “encourage health care expenditures” effect would swamp the “encourage high deductibles” effect. A $1000 or $2000 deductible is still not very high, especially since most people using the plan will be middle class or above. So aggregate medical costs would rise rather than fall.
More politically and more cynically, the plan has the plus of (possibly) deflecting pressures for national health insurance.
The best case for HSAs involves strategy. The plan might, in the longer run, wean us away from more governmental mechanisms. And people will identify with their health savings accounts, which will cause voters to internalize some of the effects of their decisions in the voting booth.
That being said, the strategic issues cut two ways. The core idea, whether admitted or not, is that we cannot muster the political coalitions to eliminate the original distortions on savings and health care decisions. Rather than keeping up this good fight, we should cave and add in some new distortions, hoping the net effects are to some extent a wash. In other words, the Bush people must believe it is easier to sell people on a new “benefit” than to undo previous mistakes. But the more distortions we add on, the harder it becomes to get rid of any of them. I wonder how wise this will prove in the longer run.
I am all for the idea of the ownership society. But let’s start with letting people own things. This means cutting government spending and the real tax burden over time. It is less useful to direct individual behavior by using a crazy quilt set of conflicting incentives to induce them to lock up their funds for purposes specified by the government.
Some of the facts above are from The Wall Street Journal, September 9, 2004, p.D2.
In discussing prizes, Alex wonders why cryonics isn’t more popular?
Individuals may pay for medicine mostly to convince groups of their loyalty, and groups may pay to convince individuals similarly. This can explain many puzzles, including the low health value of medicine, and the lack of interest in private info about quality of medicine. Together with a few simple auxiliary assumptions, it can also explain many other health puzzles.
This theory also suggests why people might be particularly uninterested in cryonics. At present cryonics is something individuals buy for themselves, which if it works will transport them to an alien social world where they can do little to aid their current social allies. That alien world seems unattractive and downright scary to most current allies, and spending all that money on going there reduces one’s ability to aid current allies. Buying cryonics can then naturally be interpreted as symbolizing betrayal and abandonment. And with medicine mostly being a symbolic purchase, people aren’t in the habit of looking any deeper than that.
This suggests that cryonics is mainly going to be popular among people who think of the distant future not as a scary alien place, but as their home and social world, and especially among tight-knit groups of people who expect to move there together. It suggests that perceptions of social fragmentation (such as when many split off from Alcor) are especially damaging, and that evidence of the effectiveness of cryonics technology is only marginally important.
Have you noticed that women in particular are hostile to the idea of their men surviving them and coming back for another life?
Alas, I am a cryonics pessimist and I have yet to sign up for the extant services. (It is an interesting exercise to sit down and calculate how much resurrection would be worth to you, your implicit probability expectation, and your value for the modest yearly fee; many people have to fudge the numbers to justify their absolute dismissal of the idea.) But I also am pretty sure that most people, including prospective donors, reject the idea for the wrong reasons.
Better to just forget about your troubles, it seems:
…regular diarists were more likely than non-diarists to suffer from headaches, sleeplessness, digestive problems and social awkwardness..[the researcher] speculates that diarists buck the usual trend because instead of a single, cathartic outpouring to offload trauma, diarists continually churn over their misfortunes and so never get over them.
Writing about trauma is most closely correlated with poor health, although the researchers admit that correlation is easier to show than causation. I’ll predict a similar result will hold for personal blogs, though I don’t know of any data.
Addendum: The ever-insightful Randall Parker offers further commentary.
China, in short:
…health costs will rise more rapidly as a percentage of national income among Third World nations that are now entering into modern economic growth than has been the case in OECD countries…
The supply of chronic conditions that require treatment is much greater at middle and late ages in China than the supply that currently exists in OECD nations…a [previous] low life expectancy and such a high infant death rate mean that those who survived to middle ages experienced severe biomedical and socioeconomic insults in utero, in infancy, and in later developmental stages…Despite the rapid advances in public health and strong economic growth, the negative conditions that influenced physiological development remained severe into the early 1960s…such early-life insults reduce the waiting time to the onset of chronic diseases at later ages and increase their severity.
Consequently, individuals who are age 50 and older in China today will have far higher prevalence rates of chronic diseases than is the case in OECD nations.
That is all from Robert Fogel’s short but excellent The Escape from Hunger and Premature Death, 1700-2100.
It is estimated that the number of chronic diseases per person could be triple than currently experienced in the United States; the level in China would be comparable to that of the U.S. in about 1900. At that time the average American male suffered from six chronic medical conditions, and it was very likely that at least one of those six was debilitating, meaning the person could not work.
The bottom line: Expect China to experience some serious demographic problems in the coming decades.