Cutler believes that our expenditures on health care have more than justified their cost. He therefore opposes the traditional recipe of “cut costs and use the savings to finance greater access.” His attitude is closer to “expand care now and improve the quality of outcomes.” If you think that more discretionary spending doesn’t make many people much happier, why not make them healthier and longer-lived instead?
As I read the book, Cutler is pushing two major ideas:
1. Subsidize insurance to ease the problems of the forty million uninsured. But he repeats the usual numbers, without convincing me that the problem is as bad as it sounds.
2. Pay for health care results, rather than rewarding expenditures per se. In other words, give doctors and hospitals bonuses for actually making patients better.
A loyal reader of MR should not be surprised to read that Robin Hanson had the idea first. Read his intriguing essay at the link. In Robin’s vision you buy your medical care from an institution that contracts with a third party to pay penalties, or receive bonuses, depending on your longevity, disability, et.c — whatever can be measured. I can imagine such incentive schemes working in the decentralized private sector, especially after much trial and error experimentation. (Note the potential adverse selection problem: you don’t want providers to have an incentive to shun hard-to-improve cases.) It is much harder to see federal or even state governments getting the incentives right, and having the political capital to see the correct decisions through.
The bottom line? Cutler is obviously a smart guy but overall I found the book underargued. I like his optimistic, can-do attitude, but I don’t trust it in the hands of politicians.
Carolyn G. Heilbrun’s suicide this past October could not have come as a great surprise to her family and friends. After all, the 77-year-old former Columbia University literature professor and mystery author [pen name Amanda Cross] had written for years about her plans to kill herself.
Heilbrun was suffering from none of the conditions commonly associated with suicide when she evidently took an overdose of pills and put a plastic bag over her head. She was neither terminally ill, in severe pain nor, apparently, depressed. Instead, she committed what some have called “rational suicide” — ending one’s life out of a conviction that one has lived long enough, that the likely future holds more pain than joy.
Rational suicide, a coinage dating back nearly a century, has also been called balance-sheet suicide, suggesting that sane individuals can objectively weigh the pros and cons of continued life, and then decide in favor of death.
Read the whole story. (You will note that The Washington Post has new registration procedures, it takes no more than a minute, and we link to them frequently, you are encouraged to register.) Or sometimes you may attempt suicide to get more attention and resources from other people.
I am a skeptic, and unlike many economists I am willing to point The Finger of Irrationality. Consider the following:
Heilbrun’s decision [is] such a disturbing one, says suicide expert John L. McIntosh, chairman of the psychology department at Indiana University South Bend. Even someone making what appears to be a thoroughly rational case for suicide, McIntosh says, can be suffering from depression or cognitive rigidity, an unwillingness to consider other options. Health professionals, he stresses, should be diagnosing and then treating such individuals.
So what happened?
Heilbrun…had been especially open about her plans. In her 1997 book, “The Last Gift of Time,” she described life after age 70 as “dangerous, lest we live past both the right point and our chance to die.”
Two concerns that Heilbrun mentioned were her “inevitable decline” and becoming a burden on others. Her motto, she said, was, “Quit while you’re ahead.” But though she was then 71 years old, Heilbrun chose not to act — not yet. Her sixties, to her surprise, had been a source of astonishing pleasure. She wanted to keep writing, enjoy her family and friends, spend time in a new home and keep certain “promises.”
In the July 2003 issue of the Women’s Review of Books, however, Heilbrun wrote that she feared “living with certainty that there was no further work demanding to be done.” She had consented to life, she stated, “only on the terms of borrowed time.”
On Oct. 9, 2003, Heilbrun was found dead in her New York apartment, having committed suicide. A nearby note read “The journey is over. Love to all.”
My take: I plan on hanging on until the bitter end. Perhaps that is why I cannot so easily imagine a rational suicide, apart from cases of extreme pain and terminal illness.
The price that Medicaid pays for pharmaceuticals is based upon the price in the private market. When Medicaid prescriptions are only a small portion of the total market this works reasonably well at avoiding the twin problems of monopsony (Medicaid pushing prices so low that R&D incentives are curtailed, as has happened in the vaccine market) and monopoly (pharmaceutical firms jacking prices up above fair market value).
But in some areas, Medicaid accounts for a large fraction of the market. The Medicaid share for HIV drugs, for example, is more than 50% and in antipsychotics the Medicaid share is more than 75%! (I have cribbed from this paper by Mark Duggan.) In this situation it makes sense for pharmaceutical companies to raise prices – they lose customers in the private market but this is more than made up for by the increase in prices that they can charge to Medicaid. As a result, average prices for HIV and antipsychotic drugs are higher than for any other drug categories.
The Medicaid pricing formula can create a vicious spiral. Medicaid pricing causes prices to rise which pushes more people into Medicaid thereby shrinking the private market and increasing the incentive to raise prices yet further. To add insult to injury, high pharmaceutical prices are then said to demonstrate why we need more government involvement.
India is emerging as a new proving ground for pharmaceutical trials. Clinical trials in India typically cost 50% to 60% less than in the United States. The Indian population is genetically diverse, labor costs are much lower, the number of people is large, many Indian hospitals keep good records, and many diseases are prevalent in India. Furthermore many Indians are “drug naive,” meaning that they are not taking other drugs that could influence trial results. The Indian government, however, will not allow testing for basic drug safety, out of fear that Indian nationals would be viewed as “guinea pigs” for the West.
The bottom line: Medical outsourcing will lower drug development costs and save lives.
The full story is from Thursday’s Wall Street Journal, “India Emerges as New Drug Proving Ground,” Marketplace section. Here is an earlier MR post on medical outsourcing.
It was for this fellow.
Your spouse is dying of kidney disease. You want to give her one of your kidneys but tests show that it is incompatible with her immune system. Utter anguish and frustration. Is there anything that you can do? Today the answer is yes. Transplant centers are now helping to arrange kidney swaps. You give to the spouse of another donor who gives to your spouse. Pareto would be proud. Even a few three-way swaps have been conducted.
But why stop at three? What about an n-way swap? Let’s add in the possibility of an exchange that raises your spouse on the queue for a cadaveric kidney. And let us also recognize that even if your kidney is compatible with your spouse’s there may be a better match. Is there an allocation system that makes all donors and spouses better off (or at least no worse off) and that maximizes the number of beneficial swaps? In an important paper (Warning! Very technical. Requires NBER subscription.) Alvin Roth and co-authors describe just such a mechanism and show that it could save many lives. Who says efficiency is a pedestrian virtue?
See here for more on how to alleviate the shortage of transplant organs.
The United Network for Organ Sharing says that “justice refers to allocation of organs to those patients in the most immediate need.” As such, skin color should be irrelevant in deciding who gets a transplant. But although proponents are loath to make race an explicit factor in transplant policy they are surreptitiously redesigning the organ allocation system in order to increase the number of blacks who receive transplants. The system is being redesigned to meet the ideals of the social planners despite the fact that such “affirmative action” will result in more deaths overall. As a proponent of financial incentives for organ donors I have often been accused of being immoral. But my conscience is clear – I have never advocated killing people to serve my idea of social justice.
From the Wall Street Journal (Friday, Feb. 6).
New rules for allocating scarce kidneys will result in 6.4% more blacks getting transplants, while slightly increasing the number of unsuccessful transplants, a study finds.
Blacks and other minorities have long been disadvantaged on transplant waiting lists — in part because the scoring system gave strong priority to compatibility between a recipient and the donated organ. Although blacks donate organs as often as whites, they have an extremely wide variety of protein markers on the outside of their cells — making an exact match much harder to find than for whites.
Making matters more acute, kidney disease in blacks is very common, owing to their higher rates of high blood pressure, which takes a toll on the urine-filtering organs. Blacks make up 12% of the U.S. population, but account for 36% of the 56,544 people in the U.S. waiting for a kidney. Prior to the scoring system overhaul, they were 33% less likely to get a kidney than whites.
The new rules, implemented in May by the United Network for Organ Sharing, stop giving priority for a certain type of immunological match known as HLA-B.
The report on the new system, in Thursday’s New England Journal of Medicine, used a statistical method to predict what will happen under the new rules. It finds that, had the new rule been in effect in the year 2000, 2,292 blacks would have gotten kidneys, up 6.4% from the actual number of 2,154 blacks. Meanwhile, 3,954 whites would have gotten the organs, a decrease of 4%. Hispanics would have seen a 4.2% increase. Asians would have seen a 5.9% increase.
Critics feared the new rule could reduce the success rate of transplants, effectively wasting precious organs on people whose bodies were likely to reject them. About 2% more organs will be rejected in people of all races, resulting in the need for another transplant, the study predicts.
More Americans and other nationals are traveling to Thailand for health care. A heart bypass costs 8-15K instead of 25-35K in the U.S. and arguably the service is better. In addition to a good doctor they will give you limo pick-up and convalescence time in a hotel. You can get a nose job for less than a quarter of the price. If you are uninsured, lightly insured, or stuck in a Canadian queue, why not go abroad for your care? Some Thai hotels are helping to organize care services, in conjunction with medical providers. In 2002 Thai hospitals treated 308,000 patients from abroad.
Are you interested? Check out this site and hope they learned more medicine than English grammar. Nonetheless the doctors are promoted: “Asians often seem to do well in high tech academics… not that well in football, but often very well in the class room / laboratory… pretty good in baseball & gymnastics..”
The suppliers offer their own caveat, however: “I probably wouldn’t have Siamese Twins separated in Siam!”
Worry all you want, the bottom line is that one root canal pays for a luxury vacation.
Singapore and India also are taking in foreign patients, 200,000 and 10,000 accordingly, with predicted growth for the future. Medical products are being outsourced to Asia as well, with significant cost savings.
In an age of skyrocketing medical costs, and pressing fiscal problems, surely this is good news. The thing is, other forms of outsourcing are also good for both your wealth and your health, and for the same reasons.
Some of the information in this post is from the recent Business Week article “Sand, Sun, and Surgery,” not yet on-line.
In 2003, Joseph DiMasi, Ronald Hansen, and Henry Grabowski published an important paper in the highly-regarded Journal of Health Economics that estimated that the average cost of developing a new drug was around $805 million dollars. Hal Pawluk at Blog Critics repeats some nonsense from Public Citizen to claim that high research costs for pharmaceuticals are a myth and that this paper in particular is part of a conspiracy of pharmaceutical companies to raise prices. Frankly, the comments of the critics are laughable but not everyone sees the joke so I will explain.
Here is the number one criticism, the “major flaw,” in the DiMasi et al. study according to the critics.
1. The $802 million included $400 million that had nothing to do with bringing drugs to market. It was an estimate of how much the drug companies could have made by investing in some other way. This is an imaginary number that the drug companies do not pay.
(See also, Public Citizen who say these are “theoretical costs that drug companies don’t actually incur.”)
Firms spend on R&D from the day the development process begins up until the day the drug is approved for marketing which may be a decade or more later. But a dollar spent early in the process could have been earning interest in the bank for years before marketing approval is achieved. Recognizing this, DiMasi et al. calculate the cost of the drug as if all the money had been spent on the day the drug was approved.
Is this unreasonable? Well, suppose you lend me $5000 – how much would you want back in a year, in 2 years, in 10 years? The longer the loan period the more you would expect back when the loan came due, right? This is exactly the same calculation performed by DiMasi et al.
I challenge anyone who thinks this is imaginary money to lend me $5000. I guarantee to repay them the same return as they recognize as legitimate for the pharmaceutical companies.
In 2002, 6609 people died while on the waiting list for an organ transplant. This figure, widely quoted in the media, is an underestimate of the number of deaths due to the shortage because it only counts those who die while literally on the waiting list. In 2002, however, 1844 patients were removed from the list before they died because they became too sick to undergo a transplant. It’s likely that most of these patients die soon after being removed from the list so adding these patients to the tally increases the number of deaths caused by the shortage by some 28 percent. In addition, many people who could benefit from an organ transplant are never placed on the waiting list in the first place and when these people die their deaths are not counted as a cost of the shortage but they surely are.
For some solutions to the shortage see my earlier post, Dollars for Donors.
Loni Wells has required 8 Â½ hours of dialysis every day since her kidney failed completely in February of 2000. After a publicity effort by her father, 36 complete strangers offered to fly to Edmonton to donate to her one of their kidneys. But, writes Adam Young,
[when] these potential matches contacted the local branch office of the Stalinist medical system in Canada, their benevolence was brushed away….The transplant monopoly, however, insists living donors be either family or close friends.
“There has to be an emotional bond, a close relationship to proceed to any further steps,” explained Ed Greenberg of Capital Health in Edmonton.
What an arrogant bastard. How dare this bureaucratic peon sit in judgment on the quality of mercy?
Dr. Rangel offers a summary:
1. Universal coverage with the Federal government as the single payer. Proponents; Braun, Kunicinch, and Sharpton. Cost; over a Trillion per year at least. Needless to say, none of these candidates are anywhere near the front runners in the polls. Do these people even remember Hillary Clinton and the early ’90s? Under such a system costs would be contained via price controls, restrictions, and rationing and for all this reduced care most Americans will be hit with either higher taxes and/or higher consumer prices (in order to raise most of the trillions needed to pay universal health care many of these plans would target businesses and investments with massive tax increases and these costs would in turn be passed on to the consumer).
2. Universal coverage via employers. Proponent; Gephardt, who would mandate that all employers pay for health insurance for their employees. Employers would be able to deduct 60% of the costs of the insurance premiums (the 60% would also be for the self employed and for government workers). Requiring all employers to provide for some type of health insurance for their employees is a great idea but in it’s current form as proposed by Gephardt it is potentially the most disastrous as far as containing health care costs is concerned.
What he is essentially proposing is that we massively expand the same system that has effectively insulated patients from the real costs of health care, prevented any type of competition or market forces from controlling costs and allowed health care expenses and usage to get out of control in the first place (see my post on this issue)! Without any market forces or direct governmental restrictions to control costs, usage of health care resources would expand ad nauseum and ultimately bankrupt the system. Cost; $215,000,000,000.00 a year assuming that health care costs remain level (likely to be several hundred Billion above these estimates).
3. Expansion of current programs or new government programs. Proponents; Clark, Dean, Edwards, Kerry, Lieberman. Costs; Anywhere from about $50 to $100 billion a year. With minor differences most of these proposals would expand coverage for children, provide for more coverage for people in between jobs, and increase tax relief for employers providing health insurance coverage (though not as much as Gephardt’s plan).
What is the bottom line?
None of these plans would institute any meaningful market reforms that may help to control health care costs. They claim their plans would make health care “more affordable for all Americans” but it all amounts to little more than political slight of hand. Health care wouldn’t be made cheaper nor more affordable. The costs would just be shifted and spread around. Higher costs for employers would be passed off to consumers and the rest would be paid by taxpayers in one form or another.
The danger of many of these plans is that the more money they pour into the system the more they will stimulate health care usage and this will lead yet again to large cost increases. I would be willing to bet that any one of these plans to expand health care coverage will be costing two or three times as much as projected in the next few years alone.
Government, when it simply transfers money (e.g. Medicare), can face lower marketing and administrative costs than does a private insurance company. Or government can save money by simply getting out of the way. These cases aside, the only way government can save real resources on health care is to restrict access, typically through some form of rationing. See also my earlier post on who are the uninsured.
Jonathan Rauch says no. He argues that allowing HIV-positive individuals to apply for residence will bring those individuals into mainstream medical institutions. The alternative may bring undocumented HIV-positive individuals who never receive good medical care or perhaps never even discover their HIV status, infecting others in the process. Rauch writes:
The ban on aliens with HIV was first imposed administratively, by the Public Health Service, in 1987, when fear of AIDS was at its peak and the disease was effectively untreatable. As therapies became available, public health authorities soon came to believe that the policy merely drove the disease underground and thus was ineffective, if not counterproductive. The first Bush administration and then the Clinton administration tried to revoke it. To no avail: In 1993, Congress wrote the HIV ban into law. No other disease faces such a statutory ban.
Even in 1993, the ban made little sense. America was the world’s epicenter of AIDS, exporting rather than importing the disease, and so aliens were far more likely to get HIV in America than to bring it in. Anyway, the policy never required an HIV test for entry; only when an alien seeks permanent-resident status, usually after having already been in the country for years, is the blood test routinely required. So the policy, as put into practice, is about kicking people out, not keeping them out.
Congress was worried about the costs of welfare and publicly funded care for immigrants with AIDS. A valid concern, but one addressed by the underlying immigration law, which bars aliens deemed likely to become a “public charge,” whatever their disease. Today, diabetics and cancer patients can visit and live in the United States on showing they have insurance or resources to keep themselves off the welfare rolls; only people with HIV are barred, whether they are sick or not. This is discrimination, pure and simple.
The numbers suggest that much is at stake: for instance about 1 in 12 Africans is HIV-positive, by some estimates. Singapore has faced related issues with foreign prostitutes.
Rauch’s proposal, obviously is not a political winner, even though the Bush administration has been relatively sympathetic on the AIDS issue. I am interested in considering the deportation question more generally. Should we, for instance, deport SARS carriers? SARS is highly contagious to larger groups in a shorter period of time. Unlike HIV-positive status, you can’t (it seems) just walk around with SARS for years. You might argue that if we deport SARS carriers, undocumented immigrants with SARS will be reluctant to report to hospitals. A good point, but I suspect that many of them rather quickly cannot continue on their own without dying. On the other hand, say you have an undocumented SARS patient on your hands. It is crazy to put them on a plane (we cannot over time afford many quarantined flights), best to leave them in a hospital. Nor does it gain you much to deport them once they are better.
So in looking for standards for deportable diseases, we might focus on rapidity of contagiousness, and ability to deport without infecting others in the process. Whether an individual can serve as a “silent carrier” can cut either way. On one hand, silent carriers can infect others for a longer period of time, which suggests a reason to boot them out (though of course they must go somewhere). On the other hand, it is the silent carriers that you want to report to the medical establishment. There is also a question of stock vs. flow. If the potential future flow of HIV-positives is high, that argues for deportation, as an incentive to keep others away. But if the stock is high relative to the flow, that argues for greater tolerance.
Sometimes it puts the world at risk to deport individuals before their treatment is complete, read this story on tuberculosis. And of course some of the deported will simply die without the medical care of the wealthier nation.
Children who are born during economic booms live longer than their counterparts born during leaner times. The result holds for a Dutch data set of 3000 individuals born between 1812 to 1912. Here is a summary of the research. Here is the paper itself. A ten percent improvement in economic product added three years to the average life in the data set. OK, that is not so shocking on its own terms. The surprise is that the beneficial effects of wealth are most determined by the level of national wealth in the first seven years of life. In other words, good child care pays off for a very long time. And bad macroeconomic conditions take their biggest toll on the young and the elderly. If you are born in poor times, your chance of dying early has its greatest spikes during your childhood or after the age of fifty. It remains to be seen whether these results generalize to current levels of wealth in the United States. To be sure, a bad macroeconomy raises stress and damages health, but I know of no modern data on whether the effects on children persist through time.
Addendum: Ken Hirsch suggests that: “It appears that in wealthy countries, within the last forty years, recessions actually reduce mortality. See the work of Chris Ruhm and those he references:
“Good Times Make You Sick”, Journal of Health Economics, Vol. 24, No. 4, July 2003, pp. 637-658.
“Does Drinking Really Decrease in Bad Times?” (with William E. Black), Journal of Health Economics, Vol. 21, No. 4, pp. 659-678.
“Are Recessions Good For Your Health?”, Quarterly Journal of Economics, Vol. 115, No. 2, May 2000, pp. 617-650.
“Healthy Living In Hard Times”, July 2003, submitted to the Journal of the European Economic Association, click here.
See also “Deaths Rise in Good Economic Times: Evidence From the OECD”, (with Ulf-G.Gerdtham), November 2002, submitted to the European Economic Review, click here.”
The references are from Hirsch, I have edited his remarks slightly so that the links flow with the text.