Ezra Klein reports:
For people, like, well, me, who think that the health insurance
exchanges have a real shot at lowering health-care costs throughout the
system, the graph
above is difficult. For conservatives who believe that the key to
constraining health-care costs is to encourage competition between
insurers and give individuals the opportunity to choose, the graph
above is difficult. Because what the graph above shows is that neither
of those strategies has worked terribly well, at least as of yet.
The bottom line is that premiums seem to go up no matter what the institutional structure or its degree of competition.
On the Baucas bill, from the CBO, via Greg Mankiw:
tax rates would go up by about 22 percentage points for all families
whose income was between 100 percent and 400 percent of the poverty
Matt Yglesias offers wisdom on cutting health care spending.
Still, though waste is a huge element of our insurance spending, insurance-related waste is a relatively small portion of the overall waste–about 14 percent. The biggest chunk of excess spending we’re involved with is spending on “outpatient care.” We pay doctors more than other people do, our doctors order more tests than other doctors do, our tests are more expensive than other people’s tests, and we have many more relatively expensive specialists and relatively few relatively cheap GPs. And we have nothing to show for it.
The prospects for changing this, however, don’t look great to me. People don’t like insurance companies. Taking them on is popular. And nevertheless we see how difficult it is to really hurt their interests. Now imagine taking on the doctor lobby. More money is at stake. And doctors have a much better public image. And doctors and there families are a much bigger voting block than insurance executives and their families. And on top of that, people have a very strong mistaken intuition that getting lots of tests and seeing lots of specialists is in their interests.
By the excellent Jonathan Rauch, this unexcerptable piece is very funny (and sad).
I wonder what it would be like to extend this series: if Whole Foods worked like health care, if the internet worked like health care, if higher education worked like health care…wait…higher education does work a bit like health care.
With most infectious diseases, reducing everyone’s risk by a third would make
quite a difference across a whole population. But the problem with HIV is
that it is both an infectious disease and a behavioural one. I can get it by
sharing needles with other drug injectors, I can avoid it by using condoms
every time I have sex. If I know I have been vaccinated, will that make me
more likely to share needles, or less likely to use condoms? And if it does,
will that change outweigh the 30 per cent reduction in risk that comes with
That is Elizabeth Pisani, here is more.
Greg Mankiw's column today is one of his best. Here are the key points:
Imagine that someone invented a pill even better than the one I take. Let’s call it the Dorian Gray pill, after the Oscar Wilde character. Every day that you take the Dorian Gray, you will not die, get sick, or even age. Absolutely guaranteed. The catch? A year’s supply costs $150,000.
Anyone who is able to afford this new treatment can live forever. Certainly, Bill Gates can afford it. Most likely, thousands of upper-income Americans would gladly shell out $150,000 a year for immortality.
Most Americans, however, would not be so lucky. Because the price of these new pills well exceeds average income, it would be impossible to provide them for everyone, even if all the economy’s resources were devoted to producing Dorian Gray tablets.
So here is the hard question: How should we, as a society, decide who gets the benefits of this medical breakthrough? Are we going to be health care egalitarians and try to prohibit Bill Gates from using his wealth to outlive Joe Sixpack? Or are we going to learn to live (and die) with vast differences in health outcomes? Is there a middle way?
The Japanese are the world's most prodigious consumers of health care. The average Japanese visits a doctor about 14.5 times per year — three times as often as the U.S. average, and twice as often as any nation in Europe…The Japanese love medical technology; they get twice as many CAT scans per capita as Americans do and three times as many MRI scans. Japan has twice as many hospital beds per capita as the United States, and people use them. The average hospital stay in Japan is thirty-six nights, compared to six nights in the United States…Japan lags, though, in terms of invasive surgery; Japanese patients are much less apt than Americans to have operations such as arthroplasty, transplant, or heart bypass. This is partly economics — since the fees for surgery are low, doctors don't recommend it as often — and partly cultural. As a rule, Japanese doctors and patients prefer drugs to cutting the body. On a per-capita basis, the Japanese take about twice as many prescription drugs as Americans do.
Japan, by the way, has invented a smaller and more basic MRI machine, which costs about one-tenth of the cost of the machines used in the United States.
That is all from T.R. Reid's The Healing of America: A Global Quest for Better, Cheaper, and Fairer Health Care. I thought this book was very readable, very interesting, and has very good information about different health care systems around the world. The author is extremely critical of the U.S. system; the premise of his book is that he takes his shoulder injury to doctors in many different countries. Since not much can be done for the shoulder, the expensive and complicated U.S. system doesn't come off looking very good. Not everyone will agree with the author's perspective but overall I recommend this book.
This is from Bill:
I am worried that the insurance companies will dump bad risks in the
public pool. They can do this by designing plans that have no value to
sick people, the way the do for Medicare Advantage programs. Here's how
you do it: have a high sticker price, but offer discounts for the use
of a gym or health club. (Non-ambulatory need not apply). Or, offer
special benefits to new mothers and well baby programs (over 50 persons
need not apply–unless you're pregnant)
I've been worrying about that for a while and of course there are many more dimensions of quality competition beyond what Bill mentions. It's possible I don't understand the plan well enough and this isn't a real risk. If so, I'd like someone to explain it all to me. (Here is a related post by Matt.) But as it stands I've soaked up all the lessons about how private insurers want to dump the high-risk individuals. Under the reform, if you can't ever cut them off or "resciss" them (is that the verb?), won't you try much harder to avoid them in the first place? Is there some provision in the bill which actually prevents this by regulating quality competition in just the right way? Given that heterogeneous consumers, and employers, choose across plans on the basis of what they want, is such regulation even possible? Right now I'm still worried. Oddly, this is perhaps less of a problem in the states with more concentrated insurance markets.
Of course if there is no public plan these people end up somewhere in the private sector, they just are treated very badly in terms of quality of service. Which makes the mandate an even less good deal for many of them.
South Africans in an impoverished township are profiting from an illegal trade in a precious new currency †‘ saliva.
sufferers in Khayelitsha, Cape Town, were found to be selling samples
of their sputum to healthy people to pass off as their own in a scam to
gain medical grants.
An investigation by the West Cape News
identified people with TB charging R50-100 (Â£4.10-Â£8.20) for saliva
samples contained in bottles stolen from health clinics.
paper said that buyers of the samples were then able to get a card from
a clinic indicating they have TB and use this to fraudulently obtain a
temporary disability grant of R1,010 per month from the department of
It seems to be a competitive market:
A 54-year-old man told a reporter that he makes an average of R500 per
month from selling his saliva to people seeking to trick their way on
to the benefits system. But he said business was "not good" because so
many people were infected with TB in the township that he had a lot of
I thank Jonathan Thomas for the pointer.
I haven't read it, but I've read various people summarizing it. A few observations:
1. CBO scoring is a very useful institution, for purposes of fiscal discipline, but you shouldn't confuse it with true cost estimates. Often a negative CBO score isn't as bad as it sounds and a positive CBO score isn't as good as it sounds. The deadweight cost of taxation matters, and we should fear future government insolvency, but at the margin a revenue transfer is simply that — a revenue transfer and not a social cost per se.
For instance a "cheaper" bill often just means that the insurance mandate carries a higher implicit tax. For some families — I believe in the range of 60,000 for a family of four — the mandate will consume 13% of income as it currently stands. That's a big tax increase — yes I will call it that — and it's not on the super-rich.
2. The main benefit of the bill is greater financial security, vis-a-vis health care expenditures, for many U.S. households. This doesn't show up as a benefit in standard estimates of gross revenue flows.
3. The bill will, over time, create a economic and political dynamic that turns health insurance companies into regulated public utilities. You might think this is good or bad, but its one of the most important changes.
4. I fear what else might end up jammed into the required insurance policy. The political dynamic here has not been thought through very well and this will be important for the long-run fiscal impact.
5. Ezra Klein discusses some harmful employment disincentives in the current bill.
6. The Baucus bill, and some of its cousins, is a bit like cap and trade in the sense that it postpones a lot of the expenditure-cutting pain into the future. If Obama — a relatively popular President with a Democratic Congress — can't do it now why should we think we will find fiscal discipline in the future? With revisions this problem is likely to become worse. The proposed pilot programs for cutting costs I view as postponements of tough decisions, not impressive starts on the problem which will be pursued scientifically.
7. How will the mandate evolve if income
inequality increases? What if, in a distant future, "roughly equal
health care access" means the mandate consumes forty percent of middle
class income and thus proves unworkable? What here is the "morally
objective" account of the medical needs of the poor and what here is
the "historically and socially conditioned account" of the medical
needs of the poor? Or do we stick at rough health services equality by squishing, taxing,
or otherwise limiting the gold-plated plans? Is that move politically sustainable
as a revenue source?
8. Let's say the previously uninsured do start getting more and better care. Soon we will need to think very hard about increasing the supply elasticity of doctors. This is an under-reported angle, but once the plan is in full swing the difficulty of getting to see a good doctor will be a story.
9. My best guess is that the Baucus bill will cement a dysfunctional health care system into place at the provider level. Of course it is reasonable to believe we wouldn't have scrapped our dysfunctional system in any case, but still the case for the bill blends into the case for many aspects of the status quo more than many bill advocates would like.
An alternative view, and a view I do not dismiss, is that the Baucus bill will lead the U.S. to abandon fee-for-service medicine at many margins. If true (and at the very least this is true probabilistically), this may be the most important long-run effect of the bill, for better or worse. Also note that we get to these changes, most likely, only by bringing the program to the brink of fiscal collapse.
If you are evaluating the bill, think rigorously about the future scenario for health care as a whole. Choose your probabilities and match them to an assessment of each outcome (cement in dysfunctional system, overturn dysfunctional system with something possibly better or possibly worse). Don't in your mind mix and match mutually exclusive outcomes to either a) feel better about the bill or b) villainize the bill.
Many people have bandied about numbers suggesting that the market for health insurance is highly concentrated. Here is the President:
But these statistics only include people insured by "insurance companies" even though nationally just over half of all employees get their health insurance from a firm that self-insures. In other words, as John Lott points out, over half of the market for insurance is being left out of these concentration statistics.
Since about half of employees are insured by a self-insurer, concentration statistics–as typically presented –should be cut roughly in half (precise numbers vary by state). Firms that self-insure typically outsource benefits management and claim
administration to highly competitive third party administrators. A key fact according to this paper (which is outdated although I wouldn't expect the basic finding to have changed) is that the populations served, the benefits paid and the premiums paid are about the same for firms that self-insure and firms that buy insurance from a health insurance company. Thus, concentration among that part of the market served by health insurance firms appears to be well disciplined by the larger market for self-insurance.
In late October I'm supposed to talk on this topic at the National Institutes of Health. It's not so much a lecture (this is not my area) as me offering some introductory remarks — from the perspective of an outsider — and then serving as discussion leader.
What should I read? Do you have any particular points to offer on this topic? I (and the NIH) thank you in advance for the assistance.
In spite of its relatively low benefit levels, the Medicare Part D benefit generate $3.5 billion of annual static deadweight loss reduction, and at least $2.8 billion of annual value from extra innovation. These two components alone cover 87% of the social cost of publicly financing the benefit.
And here's another research result:
Overall, a $1 increase in prescription drug spending is associated with a $2.06 reduction in Medicare spending.
Both papers are from very reputable sources. Left-wingers focus on the "giveaways" in this plan and conservatives focus on the cost or maybe they don't walk to talk about it at all. It's a little late to go through all the usual pro and con arguments on the policy as a whole. I'd just like to note that – relative to its reputation – the Medicare prescription drug benefit is one of the most underrated government programs of our time. If the goal is to cut or check Medicare spending, and I think it should be, we should do it elsewhere in the program.
It's also possible that the prescription drug benefit will do more for peoples' health (as opposed to their financial security) than will the Obama plan. Try getting people to consider that. The debate has become very emotional and not for the better.
I am more than willing to listen to criticisms of those cited studies. But in the meantime it seems I should rationally believe what I do.
Here is a related post of relevance.
According to a number of sources, Iran is the "nose job capital of the world" probably because other signals of beauty are shrouded (by law). Iran also has plenty of well-educated doctors. Gene Expression has some links and a few alternative hypotheses.
Here is a bit more on insurance and states of nature. In the language of economics a rational, utility maximizer allocates income to equate the marginal utility of income across all contingent-states. Thus, a rational, utility maximizer moves income from states where the marginal utility is low to states where is high, e.g. home insurance moves money from the state in which your house doesn't burn and transfers it to the state in which your house does burn - that's good because if your house burns the marginal utility of money will be high. Usually, the marginal utility of money is high in the "bad" state but not always. The classic case is that it's not generally a good idea to buy death insurance for your kids. If your kids die you are going to be miserable and more money won't help much – better to not buy the insurance and take the kids to the movies. Bertram and Dworkin are probably right that more money doesn't buy you much more utility if you are a vegetable, thus you don't want big transfers of income to this state. Summarizing, the first notion of insurance is transferring money across states.
The second notion of insurance is using money to avoid the bad outcome. It doesn't make sense to buy death insurance for your kids but it does make sense to buy them health insurance. Similarly, you don't want to win the lottery when you are a vegetable but you might be williing to use lottery winnings to avoid becoming a vegetable.
Arrow and especially Hirshleifer laid this all out in the 1960s.