I will be in Washington D.C. from today until Sunday night attending the Institute for Humane Studies Research Colloquium. Blogging will resume on Monday.
Consumer directed health plans (CDHP) seem like an attractive option for small businesses. CDHPs utilize high deductible health plans (HDHP) making patients pay more money out of pocket. Because of this, insurance premiums are lower. These HDHPs can be linked to Health Reimbursement Arrangements (HRAs) or Health Savings Accounts (HSAs). Since small businesses do not benefit from economies of scale with respect to the purchase of insurance, HDHPs may be especially attractive for this group.
A paper by Gates, Kapur and Karaca Mandic (2008) find this not to be the case, however. Firms employing 3-49 people are no less likely to offer high deductible health plans than are large firms–conditional on offering insurance. Midsize firms employing 200-499 workers are less likely to offer HDHPs than larger firms.
If the firm offers a HD health plan, will they offer an HSA? One may guess that small firms are less likely to offer HSAs if there are fixed costs to implementing an HSA. Small firms will have higher average costs to offering HSAs, if offering HSA is a true fixed cost and its cost to the employer is not proportional to the number of employees in the firm.
It turns out that small firms between 3-49 workers and firms with 200-499 workers are less likely to offer HSAs–conditional on offering HDHPs–than large firms with 500 or more workers. Middle sized firms with between 50 and 199 workers are just as likely to offer HSAs as large firms.
Other findings of the study include that HSAs are most popular in the Midwest and the South and, surprisingly, firms with a higher proportional of low-income workers are more likely to offer HSAs.
| All Firms | Firms w/ 3-49 employees | Firms w/ 3-199 employees | Firms w/ 200+ employees | |
| % offer Health Insurance | 61% | 58% | 60% | 99% |
| % offer HD conditional on offering | 14% | 14% | 14% | 14% |
| % offer HSA conditional on offering HDHP | 17% | 16% | 17% | 21% |
- Susan M. Gates, Kanika Kapur, and Pinar Karaca-Mandic (2008) “Consumer-Directed Health Plans and Health Savings Accounts: Have They Worked for Small Business?,” Forum for Health Economics & Policy: Vol. 11: Iss. 2 (Health Economics), Article 4.
John Tierney writes in The New York Times (”Appeasing the Gods…“) that “”We buy insurance not just for peace of mind or to protect ourselves financially, but because…we think buying health insurance will keep us from getting sick.”
A rational person would believe that buying insurance against an event will not alter the probability that it will occur–ignoring issues of moral hazard. For instance, the act of buying health insurance should not make us less likely to be sick. Using more preventive care which is cheaper due to insurance can prevent illness, but the act of buying health insurance should not effect the probability one gets sick holding constant the medical care levels.
A better example may be travel insurance. “Last year, tens of millions of people bought life insurance for scheduled flights of airlines in the United States. Not one of those insured passengers died in a crash.” Is this a waste of money? Not if you are superstitious and believe that the act of buying life insurance affects the probability your plane will crash.
“So when we think about passing up flight insurance, we conjure up disaster just as easily as ancient Greeks imagined a thunderbolt from Olympus, and we too figure we can avert it through the equivalent of a bull sacrifice. Intuitively, we haven’t made great strides since Homer’s day. But at least our gods take credit cards.”
- Hat tip to Arnold Kling at EconLog.
The Health Affairs blog has an interesting article on why Arnold Schwarzenegger’s health care reform plan for California has been shelved.
- Hat tip to Joe Paduda of Managed Care Matters.
As General Eric Shinseki, former Chief of Staff, U. S. Army, said “If you don’t like change, you’re going to like irrelevance even less.”
Rating websites are all the rage on the internet. From RateMyTeachers.com to RateMyCop.com, you can rate practically anything nowadays.
A new website called Vitals.com allows you now to rate your doctor as well. In addition to being able to read reviews from other patients, there are also other physician statistics. For instance, Vitals.com informs you whether or not the doctor is board certified, where the physician graduated from medical school, and also the rating of the medical school where they graduated.
For me, the more information available for patients, the better.
Is the free market working? Looks like. Wal-mart just dropped its prices on pharmaceuticals. According to a Marketwatch article (”Wal-mart…“) :
- Wal-mart will fill prescriptions for as many as 350 generic drugs costing $10 for a 90-day supply
- Over 1000 over-the-counter drugs are priced at $4 or less. Many of these include Wal-mart own private label Equate brand.
Wal-mart must compete with some supermarket chains that are offering free generic drugs to draw consumers into the store.
Traditional economic theory suggests that when the price of a good falls, the amount supplied will fall as well. Most economists always assume that the supply curve is upward sloping.
But that is not always the case in medical world. Because a physician serves both as the patient’s advisor and the supplier of medical treatment, physicians can induce patients to increase the amount of medical care they wish to receive. Patients are easily convinced because of 2 market failures: asymmetric information and moral hazard.
Asymmetric information means that the physician know more about your health condition than you do. Thus, patients rely on the advice of the physician. Moral hazard occurs because patients have health insurance. Since patients do not pay for the care they receive (or pay for it at a reduced rate), they are very amenable to follow the doctors orders.
A 1998 letter from the Health Care Financing Administration (HCFA) found that it was typical that a 50% offset will occur when Medicare payments are reduced. This means that a 20% reduction in price, will lead to a 12.5% increase in quantity. Overall, this will lead to only a 10% decrease in total cost. Since 10% is 1/2 of 20%, we have a 50% offset. Physicians are increasing the quantity provided in order to make up for the income lost from lower Medicare reimbursement rates.
This is a classic example of supplier induced demand.
An article by Yip (JHE 1998) found that this was the case for coronary artery bypass graft (CABG) surgeries as well.
- Winnie C. Yip, 1998. “Physician response to Medicare fee reductions: changes in the volume of coronary artery bypass graft (CABG) surgeries in the Medicare and private sectors.” Journal of Health Economics, Volume 17, Issue 6, December 1998, Pages 675-699
“I mean, a man has to stand for something.”
- James Woodard, wrongfully convicted of killing his girlfriend 27 years ago, on why he did not lie and admit his guilt during one of the twelve times he came up for parole.
Can we think of issues related to violent crime as basically similar to that of a contagious disease? This is the question an article in the N.Y. Times Magazine (”Blocking the Transmission of Violence“) attempts to answer.
Violence may spread like an epidemic; murders lead to revenge killings, which lead to more revenge killings. Stopping the “transmission” of violence at its source is the goal of Gary Slutkin and his CeaseFire organization. “CeaseFire tries to deal with these quarrels on the front end. [Interrupters'] job is to suss out smoldering disputes and to intervene before matters get out of hand.”
This is a radical approach, but will it work?