Category: Medicine

Singapore to Pay Organ Donors

Big news on the effort to alleviate the shortage of human organs:

Singapore is to allow compensation for kidney transplants and for eggs.
A government proposal has been approved by a bioethics committee and
legislation will be introduced early next year.

…According
to the BMJ, a sum of S$10,000 was mentioned. According to the Straits
Times, the health minister, Mr Khaw Boon Wan, mentioned "at least a
five-figure sum, possibly even six-figure" as appropriate
reimbursement. This would include expenses, such as transport and
medical costs, as well as loss of earnings. Also, the donor should be
covered for follow-up medical costs and higher insurance premiums as a
result of losing a kidney.

In other big news the National Kidney Foundation (NKF) is reconsidering their long-held opposition to compensation for organ donors.  The NKF is surveying people on financial compensation.  Marginal Revolution readers can raise the level of discussion and perhaps help save some lives by answering the survey here (it’s very short).

Thanks to Lloyd Cohen and Richard Darling for the pointers.

The easiest path toward universal health care coverage

Andrew Samwick writes:

So all the government needs to do is establish a premium schedule for
Medicaid and require proof of insurance on the tax form to be exempt
from paying that premium.  The premiums should rise with income to the
point where any middle class working family with employer-provided
coverage would likely prefer the employer coverage.  The premium levels
should be high enough so that the taxpayer isn’t paying through the
nose for someone else’s premiums.  That’s universal coverage in two
straightforward steps, without a lot of disruption to the way health
insurance is currently provided or an enormous infusion of government
funds.

Here is more.  He is likely right that this is the easiest path toward near-universal coverage.  But I am not sure I understand the actual goal of the plan.  Many people who do not currently have coverage are taxed so that they will obtain coverage.  In other words, in terms of a consumer sovereignty standard, these currently uninsured are brought to a less preferred position and thus made worse off.  This is a major tension in many health care plans, namely how much the goal is coverage per se and how much the goal is to make people better off by their own standards.  It is harder to make people better off than it is to get them covered, yet the latter is easier to claim as a political victory.

I should add that this plan, without amendment, would encourage rather than discourage health care cost inflation.

Botox makes us happy

It’s long been known that simply smiling makes people feel better and making an angry face can make people feel more angry.  Thus some cosmetic surgeons speculated:

People with Botox may be less vulnerable to the angry emotions of other people
because they themselves can’t make angry or unhappy faces as easily. And because
people with Botox can’t spread bad feelings to others via their expressions,
people without Botox may be happier too.

Amazingly, a recent experiment in the journal Cerebral Cortex supports this theory, although the abstract is a mouthful.  You can read a summary here.

We show that, during imitation of angry facial expressions, reduced
feedback due to BTX treatment attenuates activation of the left
amygdala and its functional coupling with brain stem regions
implicated in autonomic manifestations of emotional states. These
findings demonstrate that facial feedback modulates neural activity
within central circuitries of emotion during intentional imitation of
facial expressions. Given that people tend to mimic the emotional
expressions of others, this could provide a potential physiological
basis for the social transfer of emotion. 

China policy proposal of the day

Shouldn’t this story be on p.1 of every newspaper?

Now China’s government has unveiled a controversial plan to achieve universal care that would both increase health-care funding and control prices.

As this morning’s WSJ explains, the proposed plan would be quite a shift for China. The draft plan’s overall goal is to cover 90% of the population within two years and achieve universal care by 2020. It aims to return to non-profit national health care, an idea that was largely abandoned in the country 1980s.

This all stands in contrast to China’s current system, which provides little government funding to government hospitals and requires patients to pay heavy out-of-pocket expenses. The WSJ notes that out-of-pocket payments made up more than 60% of health spending in China at the end of the 1990s.

The plan – drafted in consultation with groups including the World Health Organization, the World Bank, consultant McKinsey & Co. and a few Chinese university-based public health experts – requires all revenue raised by public hospitals to be funneled to the state. The government also aims to set pricing standards for medical services.

George Halverson on health care reform

Ah, remember that topic?  Ezra Klein does.  The book is called Health Care Reform Now! and the author is CEO at Kaiser Foundation Health Plan.  That may not sound like an encouraging combination but in fact this is one of the most intelligent health care policy books around.  The analysis of cost inflation, lack of early care, and billing for procedures is perceptive throughout.  The policy proposals involve electronic medical records for everyone, legally required health insurance, enforcing that mandate through the tax system (will he really cut off EITC to kids?), high-deductible plans for the high-income insured, covering some of the uninsured through an expansion of Medicaid (expand SCHIP and cover the single poor), offering primary care-first health insurance plan to the remaining poor uninsured, and finance the whole thing through a health care sales tax.  I like that last part best of all.  Plus he wants to reform the entire infrastructure of health care and institute more pay for performance.

I’m puzzled as to how he avoids destructive "notches" (implicit high marginal tax rates) across different individual margins and what private insurance companies will do with perfect access to everyone’s electronic health care records.  And he doesn’t focus enough on encouraging innovation or dismantling bureaucracy and barriers to entry.  Still, this is one of the most substantive books out there on health care economics.  Recommended to anyone who might be tempted.

Addendum: I’ve now read through the comments and I have to admit I am a little disappointed.  I don’t favor Halverson’s solutions overall though I do favor a much greater role for integrated HMOs.  The more important point is that I should be able to cover a book, and discuss its virtues, without having to come down on it, or for it, in a partisan way.

How does socioeconomic status cause health?

Probably most of you know the familiar result that social status is one of the best predictors of personal health, even when adjusting for other measurable variables.  David Cutler, Adriana Lleras-Muny and Tom Vogl have looked at the evidence more carefully and come up with the following:

This paper reviews the evidence on the well-known positive association
between socioeconomic status and health. We focus on four dimensions of
socioeconomic status — education, financial resources, rank, and race
and ethnicity — paying particular attention to how the mechanisms
linking health to each of these dimensions diverge and coincide. The
extent to which socioeconomic advantage causes good health varies, both
across these four dimensions and across the phases of the lifecycle.
Circumstances in early life play a crucial role in determining the
co-evolution of socioeconomic status and health throughout adulthood.
In adulthood, a considerable part of the association runs from health
to socioeconomic status, at least in the case of wealth. The diversity
of pathways casts doubt upon theories that treat socioeconomic status
as a unified concept.

In other words, "we don’t know."  My simplistic view has long been that high status simply helps "keep the juices flowing," in Roissy-like fashion, and that’s good for you all over.

Can any of you high-status people find an ungated copy?

The Minnesota Somali autism puzzle

Somali students comprise only 6 percent of the Minneapolis school
system, but one-quarter of the children in the city’s early childhood
autism programs. Health officials are baffled.

Here is more.  Here is a follow-up story.  Oddly Somali families in Sweden call autism "the Swedish disease."  There hasn’t been thimerosal in vaccines for some time plus that would not explain the higher incidence of autism among these groups of Somali children.  It also seems that the Somali kids have especially severe cases of autism.

So what is the environmental trigger?  A combined lack of sunlight and vitamin D activation is the only real hypothesis I can find

Mother’s testosterone levels, if high, can influence a male child to
extreme maturational delay. (A child’s maturation rate is set at six
weeks before birth.) If the mother has immigrated from an equatorial
region with consistent diurnal light cycles of 30% to a relatively
extreme northern climate, the influence of light on the pineal gland
influencing testosterone levels can dramatically skew mothers
testosterone. The question is, do the Minnesota Somali autistic
children’s birthday’s congregate in certain seasons. If so, this
hypothesis becomes more likely. See http://www.neoteny.org/?cat=7,
particularly http://www.neoteny.org/?p=85.

Yet even that sounds screwy to me (at least it’s testable), noting that if you pursue the links you will not find mainstream science at the end of the tunnel.  But the independent appearance of the phenomenon in Sweden and Minneapolis suggests it isn’t just a statistical fluke.  And the numerous Somali immigrants in Virginia don’t seem to have the same problems. 

Here are some further readings.  Here is a speculation that autism rates are higher in immigrant communities more generally.  Addendum: Here is more on Sweden.

Vending machine markets in everything

Medical marijuana, and right here in our own California.  But it’s not so easy either:

…you can’t just walk in,
drop a few coins and roll out with a bag of weed. The machines are
situated in dispensaries, and surrounded by armed guards. We suspect
the latter is to stop the machines getting ripped off, not to harass
the legitimate users.

So how do you get your
fix? You need to be preapproved by your doctor and then give a
fingerprint. After that you get a card detailing your prescription.
Head to the machine, 24-7, and pick up your baggie.

The article details many other interesting vending machines, of course with an emphasis on Japan.  Here are my previous posts on vending machines.

Markets in everything

Decorator bandages

To Mr. Brown, 24, who works at Esquire magazine in New York, the
colorful strips are an important accessory, and he’s careful to
coordinate them with his Kris Van Assche sweater or his Balenciaga bag.
He generally wears one on his left hand or arm and balances it out with
two or three on his right leg.

He doesn’t put them on his face because, he said, “I don’t want people thinking, ‘What happened?’ “

Some call it creepy.

Why did the HMO revolution fail?

Mark Thoma cites this passage from Paul Krugman:

During the 1990’s it seemed, briefly, as if private H.M.O.’s
could play that role. But then there was a public backlash. It turns out that
even in America, with its faith in the free market, people don’t trust
for-profit corporations to make decisions about their health.

Read the whole link for a recap of Mark’s debate with Arnold Kling.  In my view what people objected to was not the for-profit status of HMOs per se but rather that they could be told they can’t get all the care they want.  That view will remain.  That’s one reason why covering 45 million or so additional Americans will lead to rising rather than falling health care costs.

On the administrative expenses of private health insurers, that is, at best, a one-time savings and health care costs still will be rising.  It’s also hard to argue that a) the really sick people are often denied care or coverage by private insurance, and b) we can pick up those same people and still lower total costs.  It’s the sick people who account for most of the costs, at any margin, and most of those costs come from medical procedures.

As the possibility of a real Democratic majority draws closer, expect to see more and more cognitive dissonance on this issue.  There’s a perfectly coherent case for greater government involvement based on the desire to spend more resources to alleviate the financial insecurity of many sick Americans.  But you are going to hear the "free lunch" version of the argument instead, based on the belief that the properties of American and European health care systems are somehow interchangeable at will.

That said, people on my side of the issue should admit that we could lower overall health care costs (or at least slow their rise) by having a true single-payer plan and putting most doctors on fixed salaries in small cooperatives, thereby altering their incentives to spend on wasteful capital expenditures.  (How many years would it take for costs to fall?)  That’s not, however, what we’ll be getting, so beware the bait and switch.  Under any plausible health care reform scenario, health care expenditures in America will rise rather than fall.  If only we had a betting market on this…

Addendum: Here is Arnold’s more direct reply.  Here are related remarks from Megan McArdle.

Should we pay doctors to ignore patients?

Here is one interesting proposal for reforming Medicare:

Each fee is meant to reimburse the doctor for the time and skill he
or she devotes to the patient. But it is also supposed to pay for
overhead, and this is where the problem begins. To Medicare, a doctor’s
overhead (or “practice expense”) includes such items as rent, staff
salaries and the cost of high-tech medical equipment. When the agency
pays a fee to a doctor who has performed a CT scan, it is meant to
cover some of the cost of buying or leasing the scanner itself.
Services using more expensive equipment generate higher fees.

…The cost of a CT scanner is fixed, but a doctor earns fees each time it
is used…a scanner becomes highly profitable as soon as
it’s paid for.

In contrast, the doctor-patient visit, which
involves no expensive equipment, offers no significant profit
opportunity. So the best way for a doctor to make money in his practice
is not to spend time with patients but to use equipment as much as
possible.

Get this:

Doctors who do their own CT scanning and other imaging order roughly
two to eight times as many imaging tests as those who do not have their
own equipment, a 2002 study by researchers at the University of North
Carolina found. Altogether, doctors are ordering roughly $40 billion
worth of unnecessary imaging each year…

So what’s the solution? 

For their time, doctors should be given a stipend for each of their
patients. It should be larger for patients with complicated medical
conditions and smaller for those who are healthy, and it should not be
influenced by the number of services or tests a doctor orders.

For
overhead, doctors should be paid an amount that covers the typical cost
of tests and treatments needed to address a patient’s condition. This
strategy – known as “case rate” or “prospective” payment – is standard
in American hospitals. The hospital receives a payment for dealing with
a patient’s underlying condition rather than individual payments for
each test and treatment. This approach offers no incentive to run
unneeded tests, and it has been credited with substantially slowing the
growth in Medicare payments to hospitals.

Of course this penalizes patients with chronic conditions, namely those which show more complications over time than average for the specified class of ailment (e.g., Bill Walton’s foot).  At some margin of unexpected complicatedness, the money runs out and people find it very hard to get their doctor on the phone or for an appointment.  If the relevant alternative is death, this policy is relatively egalitarian; if the relevant alternative is a smooth recovery, this policy is relatively inegalitarian.

I believe this idea deserves serious consideration.

Addendum: Via Mark Thoma, here are other ideas.

Means testing by any other name

Hardly anyone wants to endorse means-testing but almost everyone is for it.  Of course Medicaid, food stamps, HUD housing assistance, and many other programs are already means-tested. 

Furthermore most people want to extend the scope of the principle.

A few days ago Greg Mankiw described means testing (negatively) as "an income tax surcharge on old, sick people."  But last year Greg seemed to endorse a proposal for means-tested subsidies for the purchase of health insurance, involving a corresponding limitation on the tax break for the relatively wealthy.   

Paul Krugman writes:

If we’re serious about controlling Medicare costs, Peter Orszag and his staff at CBO have had a lot to say about this. Means-testing isn’t the answer; setting priorities for care is.

Of course the big health care priorities — most of all in Krugman’s eyes — involve greater access for poor people.  The prioritization process, if it is to save money, will in some way discriminate against higher-income users, even if the changes are not labeled as such.  The people with "too many doctor visits" or "too much wasteful use of capital equipment" are not in general the poor.

The real question is means-testing at which margin and in which manner.  In the meantime, beware of arguments which insist that means-testing is good or bad per se.

Health savings accounts

A few readers have written me or asked in the comments why I am not so crazy about HSAs.  From the past, read here and here, and here, or here is an index of previous MR posts on the topic; in any case my take is relatively straightforward:

1. I favor tax-free savings (albeit with some fiscal qualifications), so you can make a case for HSAs on this ground, noting that we do already have other tax-free savings vehicles.

2. HSAs take one market segment — usually a relatively wealthy and health care-satisfied segment — and introduce one marginal improvement of incentives.  This doesn’t seem to help much in terms of lowering aggregate costs.

3. HSAs introduce greater care into any single medical expenditure by creating a direct private opportunity cost for the spender.  I am less sure it will limit medical expenditures in general; that depends on how people frame withdrawals, once funds are committed to an HSA account, and to what extent they use HSAs for what would have been cash payments anyway.

4. As Paul Krugman says, "too much health insurance" is not the fundamental problem in the health care market.  (Unlike Krugman, I don’t see single-payer plans as the solution; I see the incentives of producers, combined with the fear and unreasonableness of buyers, as the key problem on the cost side.)

5. Re Bryan Caplan on Singapore, HSAs might work much better in another setting, noting that the other features of Singapore also might account the difference in performance in health care systems. 

6. Given #1 and #2, it is easy for me to believe that HSAs bring net social benefit.  It is much harder for me to see HSAs as "the one health care idea we would promote if we had one shot at health care reform."  The main beneficiaries are the healthy and the wealthy, and, while I am all for helping those people, surely that is odd, no?

7. I will profess my agnosticism on many health care policy issues, but one of the better plans is Jason Furman’s and/or spending more on medical R&D and some public health programs and lots of cost-lowering deregulation while in the meantime getting expenditures and costs under control.  I also recommend Arnold Kling’s work.

Democrats Proudly Cut Medicare Benefits

Last week Congress cut benefits to Medicare recipients and liberal pundits applauded.  Indeed, Paul Krugman said this was "Kennedy’s Big Day" and "the first major health care victory that Democrats have won in a long time."  Of course, Krugman and the others who applauded this "victory" didn’t say that they were cutting Medicare benefits – even though that is exactly what they were doing – instead they framed the victory as one over privatization and waste.  Here’s the story.

Medicare beneficiaries can enroll in Medicare’s fee for service plan or they can choose Medicare Advantage joining, for example, an HMO.  In the latter case, Medicare pays the HMO a rate per enrollee and the HMO competes to obtain enrollees by offering them a package of benefits and premiums. 

Now what you will be told about Medicare Advantage is that it is more expensive than traditional Medicare.  Thus the CommonWealth Fund says:

Private Medicare Advantage (MA) plans were paid an
average 12.4% more per enrollee in 2005 compared with what the same
enrollees would have cost in the traditional Medicare fee-for-service
program…

That much is true.  But why are MA programs more expensive?  The answer, which one gets by innuendo and implication, is that Medicare Advantage programs are wasteful and the extra money is being pocketed by corporations.

The CommonWealth Fund says:

"…eliminating extra payments to private plans could save Medicare a projected $30 billion over five years." (italics added)

Paul Krugman says:

the fastest-growing type of Medicare Advantage plan, private
fee-for-service, costs taxpayers 17 percent more per beneficiary than
Medicare without the middleman
.  (italics added).

Robert Waldmann is least careful and in a comment on Tyler’s article on means testing says

Cowen doubts that expanding the public share of health insurance would
reduce costs. We have a test case medicare vs medicare advantage
accounts. They cost, on average 12% more per patient…

Thus the message is that traditional Medicare is cheaper because it eliminates the middleman, doesn’t involve private corporations, and is more efficient at lowering costs.  None of this is true.

I’ll give you the full story in a minute but let me first point to one clue that something is amiss.  According to all of the above "enrollment in these plans has been growing rapidly" (Krugman).  Now why would so many Medicare beneficiaries opt out of low-cost, efficient Medicare and into high-cost, inefficient MA plans?   

While you puzzle over the clue let’s cover the necessary background.  Here is how the MA program pays a private provider (quoting the CBO).

Private plans that want to participate in the Medicare Advantage program must submit bids indicating the per capita payment for which they are willing to provide Medicare’s Part A (Hospital Insurance) and Part B (Supplementary Medical Insurance) benefits–and to take on the financial risk of doing so.

The government compares those bids with county level benchmarks that are determined in advance through statutory rules. The benchmarks are the maximum payment the government will make for enrollees in private plans; in most cases the plans’ bids (and the resulting payments) are lower than the benchmarks….

If a plan’s bid is less than the benchmark, Medicare pays the plan its bid plus 75 percent of the amount by which the benchmark exceeds the bid.

So far you might think that Krugman et al. have a point.  If the benchmarks are set too high and Medicare pays the plan its bid plus 75% of the amount by which the benchmark exceeds the bid then the plans could bid their costs and get extra payments.  Now, I hope that many of you are thinking, What about competition?  Good thinking!  Indeed, if that was all there was to it, competition would push the bids below costs.  But in fact to resolve our puzzle we need not rely on competition and economic theory because here is the kicker (quoting the CBO again, italics added):

If a plan’s bid is less than the benchmark, Medicare pays the plan its bid plus 75 percent of the amount by which the benchmark exceeds the bid. Such a plan must return that 75 percent to beneficiaries as additional benefits or as a rebate of their Part B or Part D premiums.

Now the solution to our puzzle becomes clear.  Why do beneficiaries choose MA plans? 

…because such plans provide additional benefits beyond those available within traditional Medicare, including coverage for services not covered by FFS Medicare (for instance, dental services) and cash rebates of premiums or reduced cost-sharing.

In fact, the CBO estimates that the vast bulk of the increased payments to private providers flow to enrollees who get better benefits and lower payments.  Indeed, in the case of HMOs enrollees benefit twice – first because the benchmarks are higher and second because, contra Krugman et al., the HMOs actually have lower costs than traditional Medicare!  Thus the CBO writes:

In contrast, payments to HMOs averaged 10 percent above FFS costs…On average, HMOs offered extra benefits and rebates equal to 13 percent of FFS costs; those additional benefits and rebates reflected the difference between the benchmark (which averaged 10 percent above FFS costs) and the plans’ bids (which averaged 3 percent below FFS costs).

That could be written more clearly but what they are saying is that Medicare pays HMOs 10 percent more than they would pay for an enrollee in traditional Medicare but the HMOs offer the enrollee 13 percent more worth of extra benefits and rebates.  In other words, the HMOs pass on to the enrollee all of Medicare’s "extra payments" plus some.  (Note that this is exactly what one would expect in a competitive market.)

Now, I am not saying that higher Medicare payments are a good idea. But I dislike the fact that politicians are being lauded for fighting "wasteful privatization" when what they are really doing is cutting medical benefits for the elderly.   

Means testing for Medicare

Let’s first quote Mark Thoma’s response to my column; it is indirectly a good summary of what I argue:

I believe the political argument that giving everyone a stake in the
program helps to preserve it has more validity than Tyler does, market
failures (some of which hit all income groups) probably play a larger
role in my thinking about government responses to the health care
problem than in his, and I have more confidence than Tyler that a
universal care system has the potential to lower costs.

And now here’s me:

…the idea of cutting some government transfers provokes protest in
some quarters. One major criticism is that programs for the poor alone
will not be well financed because poor people do not have much political
power. Thus, this idea goes, we should try to make transfer programs as
comprehensive as possible, so that every voter has a stake in the
program and will support more spending.

But even if this argument
holds true now, it may not be very persuasive when Medicare costs start
to push taxation levels above 50 percent. A more modest program, more
directly aimed at those who need it, might prove more sustainable in
the longer run.

Americans have supported the growth of many
programs aimed mainly at the poor. Both Medicaid and the Earned Income
Tax Credit have grown rapidly in size since their inception. The idea
of helping the poor and not having the government take over entire
economic sectors was the original motive behind welfare programs, in
any case.

Furthermore, the argument for comprehensive and
universal transfer programs does not meet the ideal of democratic
transparency. If taking care of the poor is the real value in welfare
programs, those programs should be sold as such to the electorate. We
shouldn’€™t give wealthier people benefits just to €œtrick€ them, for
selfish reasons, into voting for greater benefits for everyone, the
poor included.

Here is another point:

Advocates of health care reform tend to be long on ideas for expanding
care and access, but short on practical solutions for cost control. The
argument is often made that single-payer health care systems in Canada
or Europe are cheaper than health care in the United States. But
Medicare is already a single-payer plan, yet its costs are
unsustainable.

Note that I am calling for higher benefits for the poor and lower benefits for higher-income groups.  That’s not a popular stance, not even with egalitarians.  In fact I view the contemporary left as oddly ill-prepared on the health care issue.  Electorally speaking, the issue is fully 100 percent in their court (and they are used to pressing it aggressively), until of course they get their way and have to "meet payroll," so to speak.  One attitude is to cite Europe and think that the production possibilities frontier can expand under better management of the U.S. system, even as you cover an extra 40 million people.  Another attitude is to face the notion of trade-offs. 

Here is the full column.  (By the way, I think that HSAs are ineffective as health care reform and that the so-called "right" is floundering on
this issue, just to get in my equal opportunity smack on the blog.)

Addendum: You can make a good argument that (some) public health programs are the best health care investment of all; I just didn’t have enough space in the column to cover that issue.

Second addendum: Greg Mankiw didn’t read so closely.  It’s not "an income tax surcharge on sick, old people."  It’s a reallocation of benefits toward people of greater need.  Is any benefit less than infinity an "income tax surcharge"?

Third addendum: Here is Paul Krugman on the topic.