Category: Medicine

So asks Megan McArdle.  The argument runs as follows:

I don’t understand quite why FDA approval of drugs and medical devices
hasn’t long provided legal safe harbor for their manufacturers. The
defects that show up, such as the Vioxx and Fen-Phen problems, are
discovered long after approval precisely because they’re so rare that
they don’t show up in ordinary clinical trials. If the government
experts, who are presumably highly motivated to avoid catastrophes,
can’t spot the danger, why do we expect the drug companies to?

I can think of three possible rebuttals:

1. We simply can’t trust the bureaucrats to find the flaws with drugs.  But note this is inconsistent with both the rhetoric of FDA defenders ("the FDA can work") and FDA critics, who argue we are overinvesting in drug safety as it is.

2. Lawsuits encourage the companies to look for problems once a drug is already approved.  Regulation does not.

3. People need lawsuits as a way of emotionally striking back.  If they are denied that privilege, they will demand ridiculously oversafe levels of regulation in the first place.  In this view regulation is as much about building consumer confidence in a health care system as it is about protecting people.

I do not currently have a view on this matter.  Do you?  Kevin Drum is opposed.

The headline reads: "Health Insurer Must Pay $9 Million for Canceling Sick Woman’s Policy." 

The article has gory details about company employees being given cancelation quotas and bonuses, apparently regardless of whether the cancelations were merited under the terms of the initial policy.

If you think that health insurance policies are unjustly canceled fairly frequently (and yes I can believe this), surely this penalty should be much higher.  The cancelers are rarely caught, so a simple application of law and economics suggests severity not leniency.  For a large health insurance company a $9 million fine is peanuts.

As far as I can tell, credibly stiffer fines have not been tried.  In other words, the government does a poor job at enforcing the health insurance contract.

You might hold a theory that the government judiciary will malfunction in such a way but a health care government bureaucracy would not make mistakes of comparable importance.

I do not hold such a theory.  When it comes to health care reform, I would like to start with the enforcement of contracts based on rational and just penalties.

Yikes.  I know there is much more to the policy question than this story, but it is worth keeping in mind:

One such case was Debbie Hirst’s. Her breast cancer had metastasized, and the health service would not provide her with Avastin,
a drug that is widely used in the United States and Europe to keep such
cancers at bay. So, with her oncologist’s support, she decided last
year to try to pay the $120,000 cost herself, while continuing with the
rest of her publicly financed treatment.

By December, she had
raised $20,000 and was preparing to sell her house to raise more. But
then the government, which had tacitly allowed such arrangements
before, put its foot down. Mrs. Hirst heard the news from her doctor.
“He looked at me and said: ‘I’m so sorry, Debbie. I’ve had my wrists
slapped from the people upstairs, and I can no longer offer you that
service,’ ” Mrs. Hirst said in an interview…

Officials said that allowing Mrs. Hirst and others like her to pay
for extra drugs to supplement government care would violate the
philosophy of the health service by giving richer patients an unfair
advantage over poorer ones.

Patients “cannot, in one episode
of treatment, be treated on the N.H.S. and then allowed, as part of the
same episode and the same treatment, to pay money for more drugs,” the
health secretary, Alan Johnson, told Parliament.

And that is The New York Times.  Is Atlas Shrugging?

Addendum: More discussion here.

Kevin Drum (and Matt Yglesias) asks an excellent and important question:

Tyler is arguing for keeping the insurance industry
competitive. But I simply don’t see what that buys us. Even if the
health insurance industry were dramatically improved, this wouldn’t
especially make healthcare any more efficient. It would only make the
insurance industry more efficient. That would be nice, but hardly
earthshaking…

Let me be clear: the incentives today are screwy.  Let me also tell you my ideal world.  Insurance companies are judged by honest third party intermediaries.  Insurance companies compete like heck to make customers satisfied.  Insurance companies monitor doctors, read Robin Hanson, and require evidence-based medicine.  Insurance companies which fail at these pursuits either go bankrupt or they must abide by an ex ante contract to permit the exile of their CEOs to Greenland.  Every year prices would fall in real terms, quality would improve, and coverage would be expanded.  Imagine the whole health care sector working like laser eye surgery or cosmetic surgery.

This is not the world we live in, but it is the world we should aim for and I am more than willing to consider how government might get us there.  (Mandating greater price transparency is but one step.)  But if we institute a single-payer system, or highly regulated mandates, we will never have much chance of arriving in that world.  Ever.  We will have a fairly static sector with high coverage levels but rising costs long term and less innovation. 

I believe we know why insurance companies don’t work this way, namely monitoring problems; they screw you over instead of serving you and they can get away with it.  Go ahead, call me a pollyanna, but modern information technology and measurement can indeed resolve many monitoring problems.  We can now monitor central bank performance quite well or show up in Sicily with a credit card and rent a car.  Neither was the case forty years ago.

Here is one summary of how health insurance companies are improving information technology for claims processing, medicine itself, and promoting evidence-based medicine.  I don’t mean this industry-supplied link to be a good summary of the current truth; take it as one vision of what might be possible.  To put the point another way, insurance companies are not just risk assessors or dollar transfer mechanisms; they also can be monitors and buyer agents and that is why competition is potentially so useful.

The policy point is not: "you must die today so that the reign of Milton Friedman can arrive in forty years’ time."  It is more like: "whatever transfers we wish to do today, let us proceed so that such a future remains someday possible."

Medical care is just starting to cure human beings, so don’t think the future will look like the past.  I know that preaching the virtues of insurance company competition is not a popular position in the blogosphere but like Arnold Kling, I see the single-payer advocates and mandate advocates as the conservatives, not the visionaries.

Addendum: A month or two ago, one MR reader left a long and very good comment about all the innovations provided by private health insurance companies.  I can’t find it, can any of you?  Please let us know in the comments or email me.

Addendum: Kevin Drum responds.

Cutler is very smart, tenured at Harvard, arguably the leading health care economist, and yes he is an advisor to Barack Obama.  He says mandates are not the way to go, and no I do not think he is just "falling in line" here.  Read the whole thing.  Yes, the key is to make insurance cheaper, not more expensive.  Yes, mandates are a political loser.  Yes, ex post fiddling can make up for a lot of the problems in the "no mandate" approach and there is going to be lots of ex post fiddling anyway.

Of course Ezra is right that the non-mandate plans, such as Obama’s, don’t do much to lower the cost of insurance.  But I would like to make a more general point about the correct direction to move in.

The way most goods and services become excellent — I mean really excellent — is through competition.  Yes, right now health insurance has lots of screwy incentives, most of all cost shedding.  But if you stifle competition and write off hope of getting a better-functioning private insurance market…well…I believe you have not thought long and hard enough about just how much of the social value on Planet Earth has come, ultimately, from competition in the provision of goods and services.  How do you think we got from subsistence agriculture to super-cheap food?  By mandates?

Mandates, of course, tend to require minimum coverage and thus they limit competition in the content of policies and also the expense of policies.  It’s unclear if they are truly cheaper, all things considered.

I might that mandates make social cost less transparent and they encourage government to commit societal real resources outside of the usual budgetary process.  Those were two good general criticisms of the last eight years of the Bush administration; let’s not carry those principles of governance over into our health care policy.

If someone needs covering, for whatever reason, give them some stuff.  If need be give them some government stuff.  Some kind of plan.  Give them whatever.  But don’t overregulate private insurance companies and take them off the table as a source of future productivity improvements and super cheap coverage, however partial it may be. 

The pointer is from Brad DeLong.

By the way, if you’re looking for a ray of competitive good news on the health care front, start here.  We need something similar on the insurance front and yes I know that means not every illness will be covered.  Given the Grim Reaper, it’s all about marginal choices anyway.

Or to look at it another way, if Hillary Clinton’s entire agenda were enacted, her climate change proposals would wind up doing more to improve public health than would her health care proposals.

That is Matt Yglesias; here is more.  Here is the latest report on diabetes and low blood sugar.

Remember Milton Friedman’s arguments that a volunteer army is more cost effective than a draft?  That is true even though a volunteer army has a higher budgetary cost.  Paul Krugman today does not deny those arguments, but he elides them.  When it comes to mandates he clearly refers to budgetary costs rather than social costs but of course it is the job of the economist to stress that social costs are what matters, not to offer up to the public a comparison of budgetary costs alone.  There are lots of things we could do "more cheaply" with mandates but most of them (not all) are bad ideas.  Today Arnold Kling makes the same point.  Of course Friedman was persuasive on the draft so the argument can be made successfully in a public setting.  Elsewhere Megan McArdle writes:

Now that you are braced for the shock, here it is: comprehensive health care program costs much, much more than the government anticipated.

If you wish to compare notes, here is Krugman’s response.  The piece he links to tells us: "So the “$400 million” isn’t all unanticipated and isn’t all coming from state taxpayers."

Jonathan Gruber has just written a very useful and comprehensive paper on health insurance (I don’t yet see ungated versions).  He estimates that without a universal mandate, but using subsidies, a typical plan for covering the uninsured would cost $4500-$5000 a year per person, and that is cost in the narrow budgetary sense.  With a mandate the fiscal cost of the government (again, not social cost, which includes the cost of paternalistically forcing people to buy health insurance) is estimated at $2732 per person per year.  Of course it is cheaper to tell people what to do, comparing to paying them to do it.  That cost estimate is assuming that the mandate is effectively enforced, which I do not expect.

I would have preferred the primary estimates to be in terms of social cost.  And I would have liked a discussion of how mandates and minimum benefit requirements distort the price of health insurance and limit competition.  Read Shikha Dalmia.  Nonetheless this remains is one of the best papers on health care economics to be had.

Gruber also poses an interesting philosophical question for the paternalists: would you rather be uninsured in today’s America or obese?  And if you, like I, answer "uninsured," why not first direct paternalistic interventions toward obesity?  And I’m not talking about subsidies to olive oil, I mean real mandates.  After all, they will lower health care costs, no?
 

Arnold Kling has sad news about his father and also a very important point:

…[in the hospital] what you deal with are people who are doing their job. For example,
the cardiologist’s job is to make sure his heart does not give out,
even if it means he lies on his back for so long that the prospects for
restoring diginity recede. Everyone wants to shunt him around, giving
him more Hansonian medicine, which detracts from his ability to remain
lucid.

For the larger goal of trying to do the best with his remaining life, nobody is in charge and nobody is empowered.

Just to define our terms, I take Ezra Klein to be a guy who believes that a single-payer system is clearly a good idea and that in the meantime government-provided universal health care coverage is far better than the status quo, albeit highly imperfect compared to single-payer systems. 

If I were Ezra Klein, I would love Barack Obama and his willingness to drop the forced mandate idea.  But Ezra doesn’t seem to love Barack Obama for that.

I would think that Americans are a fairly libertarian people in some (selective) regards, and that we need to frame progress as "new and concession-laden, choice-friendly version of national health care."  I would know full well that lack of a mandate has efficiency problems, because otherwise people don’t sign up until they get sick and adverse selection makes it unprofitable to sell insurance.

But then, if I were Ezra Klein, I would think: "Ah, at that point there is no turning back.  Private health insurance companies will have to look to government for further financial aid.  This might even evolve into single payer someday, and that is probably the only way we would ever get there, given American Exceptionalism."  I also would think: "I [President Obama] can change my mind on the mandate later, if need be.  Only policy wonks follow the flip flops on such details.  And perhaps the mandate could be implemented indirectly — maybe at the state level, or framed in some other way — so that my hands are clean of apparent contradiction."  I also would think: "The mandate can’t force everyone to buy health insurance anyway — forced auto insurance mandates don’t always work — so the mandate by no means eliminates the adverse selection problem anyway."

Most of all, I would think that Democrats should not waste their energy fighting — prematurely I might add — intra-party battles over issues of mostly symbolic importance.

If I were Ezra Klein, I would think that only Barack Obama has the calm, reassuring manner required to lead America down a difficult and controversial path.  Only Barack Obama (and not Hillary Clinton) would enjoy a true honeymoon period as President, and maybe that is what is required to push through major health care reform.  Only Barack Obama would be seen as approaching this issue from a fresh start and without biases.

If I were Ezra Klein, I would worship at the shrine of Barack Obama.  I would send Barack Obama random postcards of love, affection, and yes money.

But I am not Ezra Klein, and I am not sending postcards to anybody.  Instead, I am sending you this blog post on "If I were Ezra Klein."

Addendum: If Ezra Klein were Ezra Klein.

Here is Ezra Klein, here is Paul Krugman on the same.  If we put the partisanship aside, and view this as raw statistics, what lessons can be drawn?  The biggest surprise is Japan — a country whose health care institutions are not generally popular — at number two.  Spain and Italy and #4 and #5 are less extreme examples of the same point.  Do the Germans and Danes really kill so many extra people through their health care systems?  Would you really rather get sick in Greece?

Nothing in this post is intended as apology for the United States health care system, but if we are going to look at the numbers let’s consider all of them.  If there is any lesson about the French  — who are a clear first — it is that they do something right for health care apart from having so much government involvement.  What might that be?  What do we learn about what makes for a good health care system?  Is there a correlation between health care performance and policy?  I don’t see it, maybe there is one, but I’m wondering if people are willing to draw lessons from this diagram consistently or not.

I might add I find it easy to believe that American health care institutions make a disproportionate share of stupid errors, or are responsible for lots of patient mistreatments, so I am not trying to undo our presence on the right hand side of this graph.  I do, however, walk away suspicious of the concept of "amenable" mortality.

Addendum: It’s much worse than I thought, read this, which includes a free link to the supposedly gated study.

Second addendum: Out there on the mea culpa watch, or not, here is DSquared.

People who suffer a life-threatening alteration
in heart rhythms are more likely to survive if they are in a casino or
airport than if they are in a hospital, researchers have reported.

Doctors
already knew that more than half of those who suffer such attacks in
airports and casinos survive. But a new study in hospitals shows that
only a third of victims there survive, primarily because patients do
not receive life-saving defibrillation within the recommended two
minutes.

I show
that quality of the clinics or doctors is not the underlying reason for racial differences in black and
white mortality….Differences in patient self-management trigger a racial mortality gap even
when access and treatment are equalized.

But does that paper arrive at a sensible conclusion?

Considerable reductions in medical costs could be achieved
by instructing patients about the importance of strictly following the therapy regimen.  A special
emphasis on educating minorities will have the added benefit of reducing the black-white mortality gap
by at least two-thirds.

I am more likely to think that peer effects from the early years of life are difficult to reverse by education and persuasion alone.  Here is the paper.  That’s from Emilia Simeonova, who is on the job market this year from Columbia.