Results for “evidence-based”
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The Chait-Manzi debate

Paul Krugman links to some of the key pieces, or trace through Chait's blog or Manzi plus Krugman has a NYT column today on this.  I won't go through the debate as a whole (i.e., no mention of military spending or ideas as an international public good), which covers many of the basic "U.S. vs. Europe" issues, but here are a few relevant points:

1. For this debate, "levels" are more important than growth rates.  The United States has higher per capita income than most of Europe, although I don't mean to suggest that Europe is an economic disaster.  You also can try to "argue back" some of that difference by citing social indicators or leisure time, but don't focus on the growth rates.

2. If you see the United States compared with Europe, ask if the same analysis also compares the United States to the highly successful Singapore or for that matter Brazil.  If not, be wary.

3. It would be an interesting exercise to construct an "imaginary Europe," so instead of the current gdp of Italy you would sub in the output of a comparable number of Italian-Americans, and so on.  The Swedish-Americans in Minnesota get subbed in for the Swedes in Sweden, and so on.  I've never seen that done but I would like to know the answer, both with respect to per capita income and social indicators.

4. One question is whether the U.S. or Europe does a better job of elevating poor immigrants to higher income levels.  You would think egalitarians would be obsessed with this issue, but they're not.  In fact most of them hardly mention it.

5. There has never, ever been a well-functioning social democracy — in the European sense — with the size, population, and diversity of the United States or if you wish make that any two of those three.  How about any one of those three, noting that Canada isn't really such a large country?  That doesn't mean it's impossible, but keep that in mind the next time you hear talk about evidence-based reasoning.

6. Per capita growth rates or levels can be misleading, for some of the reasons mentioned above.  A country which adds a lot of low wage labor through immigration, for instance, will look worse than it ought to.  And if you cite "higher average productivity" in some parts of Europe, you are neglecting the differences between average and marginal and also the allergies to low-wage jobs in places such as France.

7. One view is to see significant pockets of poverty in Appalachia and decry there is nothing comparable in Denmark.  Another view is to see those same poor people and compare them to the poor of the European continent, which includes places such as Belarus and Albania.  Both approaches can be misleading exercises.

8. Countries have to start from where they're at.  If you're constructing policy advice, you can either build on what a country is really good at or you can try to revise the internal culture of the country.  If you're going to do the latter, come out and say so.  Most of my policy recommendations are based on the former approach, namely strengthening what (the better-functioning) countries already are good at.  I'm not suggesting that countries never change, but getting such changes right by deliberate policy interventions is very hard to do.  I wish to stress this point applies to the pro-U.S. as much as the pro-Europe side.

I'd like everyone to have a sign, which they would hold up when appropriate: "My policies seek to revise the internal culture of my country."  That's OK, but you're raising the bar for your own ideas and don't fool yourself into thinking otherwise.

Addendum: You'll find related points here.

Consumer Driven Health Care Plans

For about the last 10 years the United States has been experimenting with consumer driven health care plans.  CDH plans typically combine a high-deductible insurance policy with a health savings account or health reimbursement account.  CDH plans now cover well over 8 million individuals, up considerably from 4.5 million in 2007 and these types of plans continue to grow rapidly.  So what have been the results?

The American Academy of Actuaries has recently produced a review of high quality research on these plans.  Here are their conclusions:

The primary indications are that properly designed CDH plans can produce significant (even substantial) savings without adversely affecting member health status.  To the knowledge of the work group, no data-based study has emerged that presents a contrary view.

Cost-savings in the first year of instituting a CDH plan relative to a traditional plan ranged from 12% to 21%, remarkably large figures.  Moreover, costs appear to grow more slowly under CDH plans than under traditional plans.  

The knock on CDH plans has always been that they could cause people to avoid preventative case.  Not only does this appear to be false it’s the opposite of the truth:

Generally, all of the studies indicated that cost savings did not result from avoidance of inappropriate care and that necessary care was received in equal or greater degree relative to traditional plans.  All of the studies reported a signficant increase in preventative services for CDH participants.

Especially interesting is that some of the studies found that CDH plans resulted in better compliance with evidence-based care.

Note that these results come from CDH plans instituted within the current system.  One would expect that the general equilibrium effects of consumer driven health plans would be even larger than the partial equilibrium effects, see Singapore for evidence (but consider Tyler’s remarks). 

The American Academy of Actuaries is a credible organization but I would like to see more of the underlying data.  All of the studies the AAA reviewed used credible methodologies, controlled for selection and were based on substantial data but the major studies so far have been industry funded.

It’s remarkable that in the current debate over how to control health care costs so little attention is being given to the important results of our 10-year experiment with consumer driven health plans.

Why is competition between health insurance companies useful?

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.

Jason Furman has an interesting health care plan

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.

Why is Medicine so Primitive?

The practice of modern medicine is surprisingly primitive.  My doctor only recently started to provide printed prescriptions instead of the usual scrawl.  Incorrectly filled prescriptions can be serious and computer printed prescriptions are an obvious response yet even today only one in four physicians use some form of electronic health records and only one in ten really use electronic records to follow a patient’s entire history.  My credit card company knows far more about my shopping history than my physician knows about my medical history.

Medicine is primitive in another way.  The number of treatment regimes supported only by tradition and authority is very high.  Here’s a recent example:

For the past 30 years or so, doctors have routinely given pregnant
women intravenous infusions of magnesium sulfate to halt contractions
that can lead to premature labor.

…[a] team reviewed 23 clinical trials worldwide involving 2,000 women who
had received the drug to quell contractions. They found that it did not
reduce preterm labor and that more babies died when their mothers took
the drug than in a control group where the mothers had not been given
it.

…Grimes and Nanda estimate that about 120,000 American women receive mag
sulfate each year for premature contractions, and they say some
evidence suggests it may be associated with 1,900 to 4,800 fetal deaths
annually in the United States.

This would be a shocker except for the fact that stories like this are common – by some accounts a majority of medical procedures are not supported by serious scientific evidence.  Indeed, what are we to make of a profession where evidence-based medicine is only a recent and still far from accepted movement?

Why is medicine so primitive?  One reason is that medicine is the largest area of the economy still dominated by artisanal production.  I will be blunt: We need assembly line medicine, medicine that is routinized, marked and measured. As I have argued before I would much prefer to be diagnosed by a computerized expert system than by a physician. The HMOs, Kaiser in particular, have done good work on measuring the effectiveness of different procedures but much more needs to be done to bring medicine into the twentieth century let alone the twenty first.   

And you think we economists are tough…

Barlow’s method for treating anxiety disorders is surprisingly simple, although its philosophical and clinical implications are anything but. He aims to reduce anxiety not by teaching customary relaxation techniques involving calming mantras or soothing imagery, but by doing just the opposite: forcing the patient to repeatedly face his most dreaded situation, so that, eventually, he becomes accustomed to the sensation of terror. Barlow claims he can rid some people of their symptoms in as little as five to eight days. His treatment promises to be psychotherapy’s ultimate fast track, but while many clinicians praise its well-documented results, others take a dimmer view of what one clinician calls ”torture, plain and simple.”

The economic rationale for this, is, of course, straightforward. Make some form of thought, feeling or behavior more costly, and people will do less of it.

And does it work?

…his success in ameliorating anxiety is by his reckoning as high as 85 percent. David Tolin, the director of the Anxiety Disorders Center at the Institute of Living in Hartford, says: ”Barlow’s program is an ideal toward which other clinicians should strive. It is the most rigorously tested and documented treatment for anxiety. Most practitioners don’t teach his approach because the field of psychology is relatively slow to adapt to evidence-based treatment.” Reid Wilson, a professor of psychiatry at the University of North Carolina School of Medicine and an ardent Barlow supporter, adds that Barlow’s work hasn’t completely caught on because, as he puts it: ”We’re still on the uphill climb. We haven’t had the manpower to train enough people. Only a very small number of clinicians know about this. They don’t understand that relaxation training could actually slow treatment instead of speed it up.”

For the full, and fascinating, story, click here. Here is another article on Barlow. Here is Barlow’s home page.

I don’t have the clinical or medical expertise to evaluate this, but surely it deserves a closer look. The economist, however, should not spring to any quick conclusions. Yes, the “substitution effect” favors a cure, but in the meantime the “income” or “portfolio” effect may drive the individual to very low and possibly counterproductive levels of despair.

By the way, our colleague Bryan Caplan offers this extreme, economistic perspective on mental illness. I think Bryan’s view is crazy; he probably thinks you would be crazy not to read such a short, entertaining polemic.