Category: Medicine

Whereas, our single clearest data point regarding the marginal value of this spending, the US-funded RAND health insurance experiment,
where from 1974 to 1982, 7700 subjects were randomly assigned to 3 to 5
years of free or not free medicine, found no significant evidence of a
substantial health effect of more medicine, confirming the usual results of continuing aggregate health–medicine correlation studies,

We the undersigned petition the US to
publicly conduct a similar experiment again soon, this time with at
least ten thousand subjects treated for at least ten years, which
should be feasible for a half billion dollars, or one part in forty
thousand of annual medical spending.  Whatever other purposes such an
experiment pursues, it should try to make clear the aggregate health
effects of variations in aggregate medical spending, variations induced
by feasible regimes of quality control, including free patient choice
induced by a varying aggregate price.

Here is the link.  I doubt if upping the number of subjects will much change the results.  As long as we are playing mad scientist, I would prefer some disaggregated tests, namely:

1. How much better off are the poor uninsured if they get health insurance?  (Financially much better off but in health terms only slightly better off is my current guess, and yes there is already some evidence here.)

2. How much less healthy would the well-insured be if they had to consume thirty percent less health care?

3. How much healthier would we be if we retargeted expenditures to some commonly recommended areas, such as pre-natal care and prescription drugs?

And my favorite is:

4. How much would health care cost if we simply banned all health insurance and modified forms thereof? 

Except possibly for #1, these are not easy experiments to run, and yes computational modeling would beg the relevant questions.  But I think #3 — or even the thought thereof — poses the biggest problem for Robin’s worldview that medicine doesn’t do us much good.  Robin is a real world innovator, a hands-on, duct tape kind of guy, so he can’t retreat into the claim that we cannot possibly parse current expenditures more effectively.  Lots of health care does lots of good, and from there we can pick up the ball and run with it.

For more on Robin’s revisionist health care views just scroll through the last week’s entries on his blog.

This is scary, no?  I’ve got my DEET and my pills:

Every year, 14 million to 18 million new malaria cases are reported in Tanzania, and 100,000–125,000 deaths occur. Of those deaths, 70,000–80,000 occur in children less than five years of age. The annual incidence rate is between 400 and 500 per 1,000 people, and this number doubles for children less than five years of age. These high rates imply multiple episodes of malaria in a single year for many individuals. The annual mortality rate is 141–650 per 100,000 people, increasing to 300–1,600 per 100,000 for children 0–4 years of age. Malaria is the leading cause of outpatients, deaths of hospitalized people, and admissions of children less than five years of age at medical facilities. As a result, it is considered the major cause for the loss of economic productivity of those between 15 and 55 years old, and an impediment to the learning capacity of people between 5 and 25 years of age.

Here is the link.

To most economists and businesspeople, it probably seems perfectly natural that health care should be sold like a commercial service by profit-seeking firms, despite the fact that until the late 1960s, there was neither organized private investment in the delivery of health care, nor large publicly traded for-profit health care corporations.

That is from Arnold Relman’s A Second Opinion: Rescuing America’s Health Care.  I read Relman as offering three major arguments:

1. To the extent the private sector handles health care, we should look toward not-for-profit and cooperative means of provision.

2. Single-payer systems will work only if the supply side of health care is reformed.  Government provision (see the UK) fails but so will for-profit corporate suppliers, even when combined with greater government involvement.  He favors a single-payer system and urges that health care supply be reorganized into multi-specialty prepaid group practices, where doctors receive fixed salaries rather than fee for service.  Many of the favored European systems involve some version of this mix.

3. He believes that market-driven or consumer-driven health care, whether of the libertarian or David Cutler pay-for-performance variety, is bound to fail.

This short book is underargued, but anyone interested in health care policy should read it.

Remember the health care debates of the 1990s?  Defenders of the status quo, or more market-oriented versions thereof, placed their hopes in HMOs and managed care.  Managed care did show promise in lowering costs, but few people liked the idea that mainstream institutions would simply say "no" to patients.

Democrats pushed a plan for national health insurance, based on a Hillary-led modification of the German health care system.  Health insurance would be detached from specific jobs, reorganized into regional cooperatives, and new taxes would finance universal or near-universal coverage.  For all its flaws and complications (and no, I do not support the idea), this idea still makes more sense for the American context than do the single-payer plans.  They put all those smart Democrats in a room way back when, and there is a reason why they came up with this.  It not only had some chance of passing, but compared to the single payer model it was more consistent with America’s decentralized, federalistic, corporate interest-heavy ways of running government. 

Sadly, current debates on health care have yet to reattain their status in the 1990s.  I know full well why both ideas failed and lost popularity.  But still, if we wish to debate health care today, we probably should be taking two steps backward.

I also show suggestive evidence, based on a very simple calibration, that the magnitude of behavioral response in Africa [to AIDS] is of a similar order of magnitude to that among gay men in the United States, once differences in income and life expectancy are taken into account.

Here is the link.  Here is a non-gated version.

The U.S. spends more than any other country on health care, over 14 percent of gdp.  A crude economist would take the "gdp" of the health sector as a measure of its economic value.  Of course this isn’t quite right, since spending money does not automatically increase health or customer satisfaction.  Advocates of European health care systems are keen to point this out.

In other words, "p x q" doesn’t measure the benefits of the U.S. system.  But critics are quick to insist that "p x q" measures the costs of the U.S. system.  That is a disconnect.  The real costs are what could have been produced with those same resources, or opportunity costs. 

Let’s say a patient pays $1000 to a doctor, but half of that sum is fraudulent pricing brought on by patient irrationality, non-transparency, fear of death, and fraud.  Sound familiar?  The real social cost is what the doctor could have produced, had he not been looking after that patient.  The real social cost is $500, not $1000.

How does this sound as a debating point: "America doesn’t have better health care outcomes than Europe, and in real terms we are spending about seven percent of gdp —  adjusting for relevant corrections– on health care"?  Not so fierce. 

Of course one might dispute the 1:2 ratio mentioned above.

But in general, the more American medical care is overpriced in current markets, the more current expenditures overmeasure social costs.

The more you think that government can bargain down prices without wrecking supply, the more you should think that current expenditures overmeasure social costs.

Recall that economists do not find efficiency loss in higher prices per se.  Higher prices are bad as a sign of restricted output.  But the American medical system has high prices and relatively high outputs, for reasons partially explained by Maggie Mahar.  So don’t measure cost by the high prices, look for output restrictions, either for health care or elsewhere.

Two caveats: We still must consider secondary economic costs; for instance it is harder to switch jobs for health insurance reasons.  Second, medical care is a sector where distribution and efficiency are not totally separate. 

But the general point remains: many of the arguments for greater government involvement imply that the true cost of the American medical system is less than the current numbers imply.

We spend fifty percent of gdp on health care.

We spend most of the rest of gdp monitoring the quality of health care institutions, let’s call them clubs.

At birth your parents buy you membership in a highly capitalized health care club.  It takes very good care of you.  Some of them are set up as mutuals.

Your club monitors what you put in the toilet, feeds you drugs through your drinking water, and manipulates your DNA to counter incipient health care problems.

At some point the club refuses to spend any more money and it lets you die (kills you?), depending how costly it is to treat your ailments.  At some cost it could keep you alive forever, though not in a very happy state.  It won’t.

Society has two main issues: discovering new medical advances, and monitoring the performance of health care clubs.  For each individual a computer record is kept of his health, his ailments, and when and how he is killed.  Specialists judge the performance of the clubs in deciding when to kill people (oops, let them die), and in turn those specialists are judged by other specialists who in turn are judged by specialists as well.

Some dissidents won’t participate in this system at all.  They die natural deaths, and for a while are much wealthier than they otherwise would be. 

There is a lot of spying on health care clubs.  Some brave club members accept huge sums to be given fatal diseases, so that intermediaries may measure whether they are killed at the proper time and in the proper manner.  These voluntary victims often use the money to save hundreds of lives in India, where the standard of living is no higher than that of contemporary America.

Remember when I wrote?

…how can a simple relative price, whether a distortion or not, corrupt the cost control practices of an entire industry?  And if government provision of health care is ineffective and costly, isn’t there a positive externality from the purchase of private health insurance?

The tax break for employer-provided insurance is, more or less, thirty percent.  Therefore the cost burdens of employer-supplied health care should not exceed that same thirty percent.  Have you noticed that current problems come in the form of cost escalation at high ongoing rates, and not just from a one-time cost bump upwards? 

If you think the tax break is behind the spiral of rising costs, you need only wait.  Once the sum total of those unnecessary costs exceeds thirty percent, the tax subsidy won’t be worth it, we’ll move to a more rational system, and all will be well, more or less.

That hardly seems believable. 

Consider an analogy with food.  Say my restaurant expenditures were subsidized by thirty percent (remember the tax deductible business lunch?).  They might put too much on my plate, and they’ll start overcharging me.  Maybe.  But once the initial adjustment occurs, it won’t lead to 5-10 percent cost escalation for meals each year.  And if it did, in a few years’ time I would simply switch to the unsubsidized meal sector, thus checking how bad the problem could get.

Addendum: See also Becker and Posner today.

I was impressed by this book by Maggie Mahar; the subtitle is The Real Reason Health Care Costs So Much.  The book has the most coherent, supportable, and fleshed out anti-market story I’ve seen.  It both tries to explain why the current system works as it does, and historically how it evolved from more modest and less expensive ways of doing business.  It’s not just a rehash of the usual stories about the VA system or France.  The discussions of the growth of for-profit hospitals, the increasing specialization of medicine, the problems with pay for performance, and markets for medical devices are all full of interesting tales.

I interpret the basic story as this: the American health care cost spiral comes from suppliers and their entrepreneurial abilities to market expensive and highly specialized services of dubious medical efficacy.  Medical care starts off as ambiguous in value and hard to measure in quality.  Customers are cowed by doctors and other family members into accepting or even demanding what is offered to them.  Third-party payments make the problem worse, and government intervention has stoked rather than checked the basic dynamic.  You end up with massive expenses, lots of stupidity, and – because of its expense — radically incomplete coverage.  Every now and then the extra services do pay off, but not frequently enough to boost American stats on health care quality.

Medical suppliers, and not insurance company overhead costs, are the main villain of the piece.  The author wishes to put doctors back in charge and liberate them from the need to satisfy patients as customers.  Ha!, I say.  Jason Furman wants to encourage individual consumers to do more monitoring.  I hold an old-fashioned desire to increase transparency and competition to induce the insurance companies, and other third party intermediaries, to set things right.  Single-payer systems will improve matters only if you think the government will make wise decisions about the supply chain.  Otherwise we are choking off supply indiscriminately by lowering prices to providers.

Here is Ezra on the book.  Here is a very brief excerpt.

Addendum: Read Maggie Mahar in the comments.  And Matt Yglesias has a good post on the topic.

A loyal MR reader asks:

…is the flow of research against malaria and other targeted diseases
good or bad (or mixed) for the recipients?  I have been a believer that
eliminating diseases would have a big impact on economic growth, but
Foreign Affairs recently had an article attacking the concentration of
charity dollars in a few diseases as tending to distort funding
allocations away from the most important local needs.

The fight against disease, taken alone, won’t improve matters much.  There are, let’s say, thirty different major problems in sub-Saharan Africa.  Eliminating any one of these problems will hardly matter, even if there is no Malthusian trap.  Economic growth is all about complementary factors, and more generally it is hard to produce outputs of real economic value.

I favor Michael Kremer’s plan to offer prizes for vaccines against diseases in poor countries.  It doesn’t cost a fortune, and its successes are as likely to boost other forms of aid as take away from them.  The lives are worth saving for their own sake, and perhaps it will herald a larger push out of misery.  But, taken alone, such an initiative won’t much improve measured economic growth.

On the other side of the debate, this Jeff Sachs paper argues that disease kills the young, thereby requiring excessively large families as a form of insurance, and underinvestment in the human capital of each child.  Limiting disease might reverse this negative dynamic, though I am less inclined to see any unique lever in this kind of vicious cycle.

#42 out of 50.

Make people pay more:

This paper proposes a template for a progressive cost sharing plan that would require typical families to pay half of their health costs until they reached 7.5 percent of their income; low-income families would not have any cost sharing.  The analysis shows that this template could reduce total health spending by 13 to 30 percent, reducing premiums by 22 to 34 percent without hurting health outcomes.  Moreover, low- and moderate-income families would face less cost sharing than they do under typical plans today while the premium savings would be more than enough to compensate middle- and upper-income families for the modest increase in their exposure to small risks.  Every family would have an affordable limit on their out-of-pocket payments, in contrast to the situation today, where many families have insurance policies that expose them to unlimited cost sharing.  In addition, the paper suggests the potential inclusion of evidence-based exceptions for highly valuable preventive care and chronic disease treatments as well as other mechanisms to protect the chronically ill.

This plan, of course, can be applied to either markets or government provision.  It finesses the problems with Bush health savings accounts, including the distributional issues and the lack of directness in achieving first-party payment.  It also assumes that the individual desire for comprehensive insulation from risk — clearly the market tendency where markets are present — is the fundamental problem in the health care sector.  If I protect myself from risk, I don’t take into account my diminished incentive to monitor health care costs, which creates larger dilemmas for the market as a whole.

An alternative plan is simply to tax the health insurance purchases of the relatively wealthy.  But if people overestimate anxiety costs of non-comprehensive coverage, they’ll be too ready to pay the tax and we might prefer Furman’s method of allocating health insurance according to a formula.  How easily supplemental insurance can be prevented remains an open question.

Addendum: Matt Yglesias comments.

Between 1920 and 1950, Jamaicans added life expectancy at one of the most rapid paces attained in any country.

It is not just Kerala, today Jamaicans live nearly as long as do Americans.  James C. Riley wrote Poverty and Life Expectancy: The Jamaica Paradox to tell us why.  For the most part he credits public health institutions, most of all education about individual disease hazards.

Recommended, the book is also readable, though the $60.00 price is steep.

A new bill would give organ donors a medal.  In other words, millions for medals but not a cent for compensation.  If people weren’t dying it would be funny.

Thanks to Dave Undis at LifeSharers for the link.  Unlike Congress, Dave is really doing something to solve the organ shortage.

The French economy may be messed up in many ways, but at least you can’t complain about their health care system.

So wrote one MR commentator, that is my paraphrase I can’t find the exact quotation. 

It is worth noting that the French health care system and the failings of the French economy are closely linked.  The French economy is notorious for its resource immobility.  It is hard to switch sectors, hard to switch jobs, and hard to switch regions.  The upshot is that when government taxes factors of production, or caps the price they command, those factors usually have nowhere else to go other than to consume more leisure.  This makes it easier to cap health care prices and doctors’ wages: everything is frozen in place. 

The more mobile American economy would find it much harder to tax skilled labor and doctors.  For related reasons, American transfer programs tend to be more expensive per
dollar of redistribution, less easily based on the provision of quality services at low prices, and they require more complex bells and
whistles.  NB: This is an argument for not trying to copy Europe, not an argument for trying to copy Europe.  Call it a cost of resource mobility if you wish.

The more a European government takes advantage of immobility, the harder it is to break a vicious economic circle.  Instituting French factor mobility, even were it possible politically, would cause low-price, low-wage sectors to decline in quality.  Factors would flee to more entrepreneurial sectors.  In the meantime, pushing everyone into more leisure lowers wealth and makes it harder to finance a "grand bargain" of palatable economic reforms.  The economy will remain stuck, stuck, stuck.  Some sectors will enjoy a captive audience of skilled labor.

I have spent several months of my life in France, and I do understand that life there is truly splendid in many ways.  But it is hard for me to believe that the French system — viewed as the organic whole it is — is the best way forward for the United States.