Category: Medicine

I'm not going to recap the whole debate but here are a few comments:

1. This is one of the better arguments for health care reform.  I don't know how widespread or significant the practice is, but something should be done to stop it.  Even if it covers only a small fraction of total medical expenditures, it is a significant moral wrong.

2. I am not convinced by the arguments that reputation provides an effective check on the practice.  Reputation affects market practices, but possibly reputation is part of the problem.  It's relative reputation which matters.  The operative reputational incentive is not always: provide a better product to get more customers.  Sometimes the reputational incentive is: customers tolerate bad treatment, because established reputations suggest they will receive equally bad treatment elsewhere.

Some of the used car market works that way too.  Why we sometimes get these bad reputational equilibria is a good question and I'd like to see it studied more. 

3. That all said, the central question concerns remedies.  Presumably the critics believe that egregious violations of law and contract are occurring.  If that is the case, why not just enforce the law more strongly and raise the penalties — significantly — for unjust treatment of sick individuals?  You can call this market failure, which it is, but it's also legal and regulatory failure as well.

If those legal parties cannot implement and enforce basic laws, can other legal parties successfully take on larger responsibilities for managing the U.S. health care sector?  Somehow it is assumed that the answer here is "yes."  I'm less certain.

You could try arguing that cases of unjust rescission are not easily observed or verified and thus tougher legal penalties will not work.  Maybe so, but then I fear the whole story becomes very muddied: "Rescission — I can't observe it, I can't verify it, yet I know it is true."

Matt Yglesias and Paul Krugman weigh in on interpreting life expectancy statistics across the U.S. and the Netherlands.  The fact under consideration, from a few days ago, is that the U.S. has low life expectancy overall but superior life expectancy after you reach the age of 65.

One way to interpret this data (re: Yglesias and Krugman) is to think that the U.S. should spread Medicare to its entire population.

Another interpretation is that spreading Medicare to the entire population would lead to higher expenditures on the health of the young and lower expenditures on the health of the old, for better or worse.  "Medicare for everyone" doesn't simply replicate current Medicare outcomes across a broader swathe of the population.  Medicare works as well as it does, in part, because not everyone is on Medicare or something comparable.  The U.S. split system makes Medicare, at the same time, both more effective in terms of outcomes and more costly in dollar price terms.

In this country the old don't seem willing to accept losing their privileged "first in line" position, namely Medicare for them and few others.  And Congress won't let some egghead committee come along and cut the waste out of Medicare.  The immediate results of the current proposed plan would thus be greater health care expenditures overall, pressures on doctor supply a' la Massachusetts, an even more severe long-term insolvency for the whole system, combined with an unclear resolution for all these escalating pressures.  I don't see many people on the pro-Obama side simply coming out and admitting these increasingly obvious truths, although Andrew Sullivan deserves credit on this score.

You may or may not think that's a good deal overall and perhaps you still think it's a good deal if you assign a high enough priority to covering more of the uninsured.  Or maybe (Kevin Drum has made this argument) you think it's the only path toward long-run cost control.  But if you think it's a bad deal overall, it doesn't mean you are in denial about the fundamental facts of U.S. health care supply or for that matter in denial about the cross-sectional comparisons with Europe.  Choosing French health care institutions for the United States has never been on the table, not even in evolutionary terms.

Sullivan put it very well a few days ago.  He noted that Obama — a master communicator — can't convince most people that the proposed reform is a good deal for them because…it isn't a very good deal for most people. That includes some of the people receiving new coverage, such as those receiving the new forced employer mandates.  (NB: Their wages will go down and they really need the money!  In the shorter run their wages won't go down and some of them will lose their jobs, even with phase-in a few years from now.  I'm still waiting for good Democratic economists to condemn this idea but I fear there is so much fixation on a "victory vs. defeat" framing of the struggle, and desire to skirt the CBO, that this isn't receiving the critical analysis it ought to.)

This desire to claim and promote a more universal distribution of benefits is one reason why you see so much attention paid to the public plan option.  The competing public plan at least offers the promise that some part of the proposed health care reforms will benefit virtually everyone.  My view is that a public plan would soak up many high-risk cases, benefit those cases and few other people, and that overall a public plan is superior to mandates, not Satan incarnate, but not a cure-all for the system as a whole by any means.  Advocates remain oddly silent as to what in concrete terms the public insurer will be instructed to maximize and how that fits in with pressures to extend coverage to more people.

Plan supporters are quite willing to admit "it's not nearly as good as what we wanted," but they're in denial about how truly bad the proposed reforms are in absolute terms or as a matter of economic logic and by that term I mean the economic logic of good Democratic economics, not extreme libertarianism.

In the meantime, repeat this sentence after me: if we don't solve the costs problem, in egalitarian terms things will only get worse, no matter how many people we cover.

The Republicans on this issue are (mostly) very bad and hypocritical but that doesn't give the Democrats license to proceed without a solution.

Adam reports:

At birth, someone living in the Netherlands can expect to live 2.35
years longer than someone born in the US, but at age 65, the difference
is reversed, and someone living in the US can expect to live 0.4 years
longer than someone living in the Netherlands. This difference can be
explained by assuming that semi-socialized health care is better for
young and worse for old people, or, at least as likely, different
policies are not the main cause of the difference

Sources: CDC national vital statistics 2004,
www.cdc.gov/nchs/data/nvsr/nvsr56/nvsr56_09.pdf and RIVM 2007
levensverwachting, www.rivm.nl/vtv/object_document/o2309n18838.html (in
Dutch)

One interesting feature of this data is that it can be used to argue for a number of different points of view.

I presented the following theory to two notable health care commentators a few nights ago.  Congressmen are looking to sell their voters for the highest "price" possible and they know Obama really wants, and indeed needs, to win a health care victory.  As health care reform "falls apart," these Congressmen face the risk that they will get nothing for those votes.  Suddenly their cartel falls apart and they lower the price for those votes.  A deal is then possible and Obama buys the votes at the lower price.

What appears to be pessimistic news for health care reform can in fact be optimistic news.  Another implication of this theory is that a lot of the "news" along the way, concerning the fate of reform, is simply noise.

I don't know what is the "p" of an extended coverage bill passing, but I believe that p has stayed fairly constant so far.

There are plenty of games in which the equilibrium and the true offer curves are not revealed until the final period.  When it comes to health care, we're not yet at the end.

With Conor Clarke, it's about his classic paper on health care.  Excerpt:

…the question that I started with was why health insurance coverage was
limited. There was virtually no insurance outside of hospitalization,
which was limited and heavily taxed. When I heard about this myself, it
was just as a consumer. My first health-care plan as a professor had a
$15,000 ceiling. A ceiling? I was thinking that should be a floor!
$15,000 I can handle, but above that… it would be a problem.

The most interesting segments are the (hard-to-excerpt) remarks on the erosion of professional standards in medicine.

By the way, what will life expectancy be when population is infinite?

Maybe there's been enough discussion of Paul Krugman on health care but still this caught my eye.  In a recent blog post Krugman wrote:

The reason we have restrictions on interstate sales of health insurance is that a number of states regulate insurers. In particular, some states have a form of community rating, which basically says that insurers can’t deny you coverage or charge extremely high premiums if you have a preexisting condition. And community rating will be unsustainable if individuals can buy insurance from out of state; insurance companies in states that don’t have community rating will cherry-pick the healthy, good risk people, leaving the community rating states with only the highest-cost people.

Krugman's post seems to be very approving of such community rating.  When it comes to California, which has no community rating, "insurers compete by doing their best to deny coverage to anyone who might actually need medical care."

Based on a close look at the data, Herring and Pauly write (I can't find an ungated version can you?):

Some states have implemented community rating regulations to limit the extent to which premiums in the individual health insurance market can vary with a person's health status. Community rating and guaranteed issues laws were passed with hopes of increasing access to affordable insurance for people with high-risk health conditions, but there are concerns that these laws led to adverse selection. In some sense, the extent to which these regulations ultimately affected the individual market depends in large part on the degree of risk segmentation in unregulated states. In this paper, we examine the relationship between expected medical expenses, individual insurance premiums, and the likelihood of obtaining individual insurance using data from both the National Health Interview Survey and the Community Tracking Study Household Survey. We test for differences in these relationships between states with both community rating and guaranteed issue and states with no such regulations. While we find that people living in unregulated states with higher expected expense due to chronic health conditions pay modestly higher premiums and are somewhat less likely to obtain coverage, the variation between premiums and risk in unregulated individual insurance markets is far from proportional; there is considerable pooling. In regulated states, we find that there is no effect of having higher expected expense due to chronic health conditions on neither premiums nor coverage. Overall, our results suggest that the effect of regulation is to produce a slight increase in the proportion uninsured, as increases in low risk uninsureds more than offset decreases in high risk uninsureds [emphasis added by TC]. Community rating and guaranteed issue regulations produce only small changes in risk pooling because the extent of pooling in the absence of regulation is substantial.

You'll find some unadjusted raw data for states here. 

Herring and Pauly, who wrote this paper in 2006, stress that what I am describing as the Krugman view is the "conventional wisdom" yet not supported by the facts.  More generally, you can think of their excellent paper is a contribution to the ongoing debate over health insurance and adverse selection.  As the authors say "there is considerable pooling."

I am not, by the way, suggesting that we should move everything to the individual insurance market or that Jim DeMint is an objective analyst of U.S. health care.

At a recent town-hall meeting in suburban Simpsonville, a man stood up and told Rep. Robert Inglis (R-S.C.) to "keep your government hands off my Medicare."

The longer article is here.

Yana is moving to Paris for the fall semester and some (but not all) family members believe that she should buy additional health care insurance for this event.  I fear this is a market which does not work very well, since so many customers don't file claims or have repeated interactions with the company.  So I ask you all — and thank you in advance — for advice on the best way to make this transaction and find a reliable company.  Web evaluations of the leading suppliers are not obviously impressive and she won't have a French institution to cover her with a local program.

This is a post rich in health care economics, I am sorry to say.  And I know how much you all love health care economics.

There are, however, no examples of successful health care based on the
principles of the free market, for one simple reason: in health care,
the free market just doesn’t work.

That's Paul Krugman.  I would frame this point a little differently.  There are in fact plenty of people who buy their health care in a more or less free market setting, most of all in Latin America but all over the world.  It's far from obvious that these markets fail in efficiency terms ("compared to what?" is the obvious follow-up).  For the wealthy in Latin America these markets seem to work well.  They work much less well for the poor but is that because of market failure or because these poor simply don't have much money to spend?

One possibility is that the main problem with these markets is distributional rather than efficiency.  (Krugman's third paragraph recognizes this, but he doesn't use the point to reorganize the analytics of his critique.  Also note some tricks.  When markets fail at providing insurance, ex ante this is a possible efficiency problem but ex post it will be a problem of distribution.)

Another way to state the health care problem is this: once we try to obtain distributional objectives, supply becomes less efficient.  That understanding might focus your attention on a voucher-like system, combined with deregulation. rather than government interference in provision.  Another option is for government to provide nudges to have better monitoring of HMOs or insurers, to make them more trustworthy.  Or maybe catastrophic-only insurance, to overcome the distributional problem where it is most severe.

You can understand the French system by citing the incentive for overtreatment and now we are back to the possibility of efficiency being the primary problem.  If you limit overtreatment, by organizing doctors into poorly paid, fixed salary co-ops, you keep costs down and make some parts of the distribution problem easier to solve. 

There are plenty of health care services in this country, such as laser
eye surgery, or plastic surgery, which are supplied in more or less
market settings.  I don't consider their efficiency an open and shut case, but it's quite possible we'd be delighted if other areas of health care worked this well in terms of cost-lowering and innovation and even availability.  It could be that these services are more transparent or it could be they are simply less regulated and further removed from third-party payment.

Read this post of Bryan Caplan's and ask yourself whether the Arrow problems are in fact what motivate most of the health care intervention we observe in the U.S.  Maybe France is the country which took Arrow seriously.

It makes a difference whether you view the case against the market as starting with issues of efficiency or distribution and usually those concepts are jumbled together.

Sometimes I wonder how wealthy we all would have to be before we could just pay cash for our health care.  I call this the Pablo Escobar solution.  It's a long way away but is it imaginable at all?  Does it recede as we approach it?  Do we have to give up some distributional objectives to ever get there?  Do we simply embrace it when the poverty line is defined as standing at $200,000 a year?

Anyway, when you look at the increase in spending per
capita, health care spending per person rises by 350 percent, vet
spending per dog rises by 335 percent, and vet spending per cat rises
by 340 percent..  So on this one, I think the conservatives have the
better argument, despite the flaws in the original evidence.

That is Scott Winship, here is more.  Little did the blogosphere guess that this topic would turn so popular.  I also liked the comment from the guy who wondered about the aging of America's pet population and whether illegal pet immigration might remedy the associated fiscal problems.

Today it is from Megan McArdle:

Veterinary spending is rising just about in line with human medical
spending.  Kudoes to AEI for publishing a graph that seriously
undercuts one of the major conservative arguments about health care: 
that the main problem is consumers who don't bear their own costs. 
Veterinary spending is subject to few of the perversities that either
left or right suppose to be the main problems afflicting health care
spending.  Consumers pay full frieght most of the time.  They are price
sensitive, and will let the patient die if keeping him alive costs too
much.  There is no adverse selection.  There is no free riding on
mandatory care.  Government regulation is minimal.  Malpractice suits
are minimal, and have low payouts.  So why is vet spending rising along
with human spending?

There is a very nice graph in the post.

I thank KunLung Wu for the pointer and of course Robin Hanson for the concept.