August 2007

You are currently browsing the monthly archive for August 2007.

How a Ph.D. Can Save Your Life

August 31, 2007 in Economics - General | Permalink

Why do people, like myself, go through the grueling, boring, masochistic process of obtaining an Economics PhD. Well, according to Paul Kedrosky (“Self help“) getting a PhD can help you discover what you really like to do.

…what I found out when doing my thesis — and something I noticed in pretty much everyone I knew who at least started one — was that you mostly discovered what else you were interested in. Why? Because pretty much anything else is more absorbing than writing a 400-page Ph.D. thesis…

It turns out, it seems, that doing a Ph.D. (even if you drop out, which I generally recommend) is a great way to discover what you want in life, albeit it will likely have little to do with the Ph.D. itself.

What are the Major Clinical Pathways to Disability

August 30, 2007 in Academic Articles, Medical Studies | Permalink

This is the question posed by a 2007 NBER working paper by Mary Beth Landrum, Kate A. Stewart, David M. Cutler. The authors use data from the National Long Term Care Survey (NLTCS) between 1994 and 1999. The data is panel in nature and has the benefit of combining Medicare administrative data with survey responses. The research examines individuals over 65 without disabilities in 1994 and see which patients became disabled and how this occurred.

Disability is defined by either:

  • 6 specific ADL tasks (eating, getting in and out of bed, getting around inside, dressing, bathing, toileting)
  • 8 specific IADL tasks (light housework, laundry, preparing meals, shopping for groceries, getting around outside, managing money, taking medications, using the telephone)
  • 9 functional limitations (difficulty climbing a flight of stairs, walking across a room, bending to put on socks, lifting a 10-lb object, reaching above the head, using fingers to grasp and handle small objects, seeing well enough to read newsprint, speaking, and hearing)

Results

“Sixty-six percent of non-disabled respondents in 1994 survived and remained non-disabled to 1999, while 15.1% became disabled over the 5 year period and 18.9% died between survey waves. Six conditions made up about half of new disabilities (48%). These conditions were:

  • arthritis,
  • infectious disease,
  • dementia,
  • heart failure,
  • diabetes, and
  • stroke.

Only 17% of elderly respondents did not have one of these conditions and a majority (54%) had two or more. Of disabled respondents, 96% of newly disabled have at least one of these characteristics. Most disabled respondents had multiple conditions; two-thirds of newly disabled respondents had 3 or more conditions. The authors examine in more depth the interaction effects of having two or more conditions. For instance:

“…the interaction between diabetes and arthritis was positive, suggesting that these two conditions have synergistic effects such that having both conditions was more disabling than would be expected by the effects of each individual condition. In contrast, two interactions with dementia were negative (stroke*dementia and heart failure*dementia), suggesting that in the presence of a highly disabling condition like dementia, other conditions have effects that are dampened relative to what would be expected when the disease occurs in isolation.”

Hopefully, this data can be used to aid health service providers on how to better prevent and treat disabilities which occur in old age.

CoR

August 29, 2007 in Carnivals | Permalink

The latest edition of the Cavalcade of Risk is up at the Health Affairs blog.

Economy and Number Uninsured grows

August 29, 2007 in Current Events | Permalink

Joe Paduda of Managed Care Matters reports (“Economy improves…“) that despite a growing economy and a decreasing poverty rate, the number of Americans without health insurance is growing.  Approximately 47 million Americans do not have health insurance.

Theory of the Second Best

August 29, 2007 in Economics - General | 2 comments

There have been some interesting economics blog postings in recent weeks about the theory of the second best. Dani Rodrik of Harvard argues (“Why do economists disagree“) that economists can generally be viewed as first-best economists and second best economists. For instance, first-best economists would claim that all healthcare should be privately financed, with a private insurance system. Second-best economists will argue that the medical insurance market is far from perfect (e.g.: adverse selection and moral hazard issues, informational uncertainties). The second best economists may argue for government intervention. In the second best world, however, a narrowly guided policy may make things worse and not better.

Healthcare example

For instance, to correct the problem of adverse selection, economists may wish to create a single payer, government-run healthcare system. This government-run healthcare system will eliminate the problem of adverse selection and increase equality (good) but may create deadweight loss due to increased progressive taxation or inefficient procurement of medical services due to the influence of lobbyists (bad). Does the good outweigh the bad? The answer is-of course-it depends.

What about an employer mandate?  Again, this issue likely will eliminate problems of adverse selection and increase equality.  The mandate, however, will likely increase costs significantly for small business–small business have much higher load factors than large businesses–which could stymie economic growth and reduce GDP for the entire society.  Again, whether or not the good outweighs the bad in this situation is unclear.

Second-best Examples from the Economics Literature

The Economist‘s Free Exchange blog (“Making the second best of it“) cites a paper by Lipsey and Lancaster (Rev Econ Studies 1956).  In the introduction, the Lipsey-Lancaster paper states:

It is well known that the attainment of a Paretian optimum requires the simultaneous fulfillment of all the optimum conditions. The general theorem for the second best optimum states that if there is introduced into a general equilibrium system a constraint which prevents the attainment of one of the Paretian conditions, the other Paretian conditions, although still attainable, are, in general, no longer desirable. In other words, given that one of the Paretian optimum conditions cannot be fulfilled, then an optimum situation can be achieved only by departing from all the other Paretian conditions. The optimum situation finally attained may be termed a second best optimum because it is achieved subject to a constraint which, by definition, prevents the attainment of a Paretian optimum.

The paper also gives an example from the trade literature.  What happens when a country decides to join a customs union (i.e.: free trade zone), such as NAFTA or the European Union?

…under these circumstances, a customs union will tend to raise welfare by encouraging trade between the member countries but that, at the same time, it will tend to lower welfare by discouraging the already hampered trade between the union area and the rest of the world. In the final analysis a customs union will raise welfare, lower it, or leave it unchanged, depending on the relative strength of these two opposing tendencies.

Another example of the problems of the second best is derived from the optimal taxation literature.

Consider a community of two individuals having different taste patterns [for goods X, Y and leisure]. The “government” of the community desires to raise a certain sum which it will give away to a foreign country. The community has made its value judgement about the distribution of income by deciding that each individual must contribute half of the required revenue. It has also been decided that the funds are to be raised by means of indirect taxes. It follows from the Corlett and Hague analysis that the best way to raise the revenue is by a system of unequal indirect taxes in which commodities “most complementary” to leisure are -taxed at the highest rates while commodities “most substitutable” for leisure are taxed at the lowest rates. But the two individuals have different tastes so that commodity X is substitutable for leisure for individual 1 and complementary to leisure for individual 2, while commodity Y and leisure are complements for individual 1 and substitutes for 2. The optimum way to raise the revenue, therefore, is to tax commodity X at a low rate when it is sold to individual 1 and at a high rate when it is sold to individual 2, while Y is taxed at a high rate when sold to I but a low rate when sold to 11. A second best optimum thus requires that the two individuals be faced with different sets of relative prices.”

But this ‘optimal’ solution violates the principal of anonymity.  If one was to invoke anonymity, this would impose another constraint and thus lead us to another ‘optimal’ solution.

As you can see, in a world filled with uncertainty, it is very difficult to make policies which are unequivocally welfare enhancing (especially in the health care setting).

Cats and dogs

August 28, 2007 in Current Events, Economics - General | Permalink

Here are two interesting articles from the blog-o-sphere:

Cat Bonds

The NY Times has an interesting article about catastrophic risk (“In Nature’s Casino“). The article talks about how individuals such as John Seo and Karen Clark have helped to create a market for cat bonds.

The problem with catastrophes is that insurance companies have not been able to adequately diversify in the event of a natural disaster.

“But by their very nature, the big catastrophic risks of the early 21st century couldn’t be diversified away. Wealth had become far too concentrated in a handful of extraordinarily treacherous places. The only way to handle them was to spread them widely, and the only way to do that was to get them out of the insurance industry and onto Wall Street.”

Cat bonds are a solution to this problem. These bonds are basically insurance policies which are sold as bonds to investors. If a catastrophe does not occur, the investors earn returns generally far above market returns. If the catastrophe does occur, than usually most of the investor’s principal is wiped out.

Just another example of markets in action.

Political Dogs

Merrill Goozner of GoozNews has a very compelling report on The Most Costly Earmark in S-CHIP.

“Last week, I learned that the bill contains another unheralded earmark, also unrelated to children’s health. This one, too, funnels hundreds of millions of dollars to special interests. And unlike the hospital earmarks, which were a mere raid on the treasury, this earmark, given the Orwellian name “Quality Incentive Payments in the End Stage Renal Disease Program,â€? will subject hundreds of thousands of Americans on dialysis to unnecessary risk, and will in all likelihood lead to premature deaths.”

It looks like both Democrats and Republicans are equally adept at inserting their favorite earmarks into a bill. Goozner reports that the legislation earmarks $300m over the next 3 years towards rewards for clinics which reach quality benchmarks for treating Medicare’s End Stage Renal Disease (ESRD) patients.  Those clinics who have 92% of their ESRD patients with red blood cell counts over 11 g/dl will receive the bonus.

“The measure gives clinics a powerful incentive to continue using large quantities of one company’s drug – Amgen’s Epogen, which stimulates red blood cell production…Recent studies have shown that raising red blood cell counts over 12.5 grams per deciliter in dialysis and cancer patients increases the risk of heart attacks and premature death. Any clinic that raises 92 percent of its patients above 11 will probably have half its patients above 12 – the maximum allowable level on the FDA black box warning – and a sizable fraction above the 12.5 danger line.”

Goozner writes than Amgen hired a team of lobbyists who likely influenced the insertion of this earmark into the SCHIP bill.  Goozner’s thorough reporting has more details on the Epogen saga, which gives more evidence that one should be very weary of medical decisions dictated by politicians.

California wants change. California does not want change.

August 27, 2007 in Current Events | Permalink

A recent press release from the California Speaks organization shows that California residents want change.  Eighty two percent of the 3,500 person conversation help August 11th believed that the health care system required change.  How should the system be changed?  Well, that’s another story.  Only 16% of individuals support a single payer system under any conditions, and only 5% of participants said they would support an employer mandate under any conditions.

What happens when we add caveats?

 ”Fifty-three percent of participants said that part-time, seasonal and other non-traditional workers must be included in order for them to support a mandate on employers to provide health coverage to their employees, also known as “pay or play.” Other conditions for supporting an employer mandate included provisions to prevent employers from reducing coverage or benefits (49%), caps on rising costs (48%), and protections for small businesses (45%)… Conditions for supporting a single-payer health care system included controlling costs and bureaucracy (55%), maintaining choice for providers (53%), and ensuring quality of care regardless of geography or income (51%).”

So it seems that people are supportive of employer mandates or single payer systems if they can cap costs, while not reducing benefits, coverage or quality.  I would support any system that limits costs, covers everyone, and ensures generous benefits and quality.  Unfortunately, in this life, there’s no such thing as a free lunch.  Thus, these responses should not be taken too seriously, since it has not been shown whether single-payer systems or employer mandates can actually reduce cost, increase coverage, and increase quality.

Megan McArdle: questioning the moral justice of a single payer system

August 27, 2007 in Economics - General, International Health Care Systems, Public Policy | Permalink

While almost all economists will argue that a single payer health care system is inefficient, many economists support the idea on redistributive ground. Taxing the young and healthy–either directly through taxes or by forcing them to buy non-actuarially fair insurance–and giving the money to pay for the medical care for the old and sick seems like the morally correct path upon which to proceed.

Megan McArdle of Asymetrical Information (now on The Atlantic Monthly website) has a series of posts (original post, “The morality of health care finance,” “Another bad argument…“) which questions this line of reasoning. She ponders whether or not the class of old and sick people, as a whole, are a more deserving class than the young and healthy. Ms. McArdle claims that the old and sick are a less deserving class. Here’s why:

  • The old and sick are less needy than the young and healthy. “They have more assets and less poverty than any other group.”
  • The old and sick are more fortunate than the young and healthy. Some of the young and healthy will not live to old age, whereas the old and sick have had the blessing of living a long time.

McArdle indirectly mentions the moral hazard of having a single payer insurance system; if you know someone else will foot the bill for your medical costs, you may decide to live a less healthy life style.

Some of Ms. McArdle’s critics argue that the young and healthy will someday be old and sick, and thus under a veil of ignorance argument, a single payer system is morally correct. This is similar to the PAYGO system that we have now for the social security system. Young workers pay for old sick people. One problem is demographic risk; if there are many old, sick people and few young healthy workers, the tax rates on the young will be extremely high. Further, one could avoid all these inter-generational transfers if each individual saved while they were young in order to finance their health care expenditures/insurance premiums when they are old.

The final blog concludes by wondering why “…Warren Buffet is entitled to have his prescriptions paid for by my dry cleaner simply because Warren Buffet happens to be in worse health”

The true benefits of a single payer system is that it provides a form of premium insurance. When individuals become sick, their health insurance company will pay for their care…for 1 year. Then, when the individual has to renew their policy, unless they have a group insurance plan, their insurance premiums will rise to reflect the greater expected medical expenditure level. This problem could be solved by having consumers choose long-term insurance contracts. Long-term insurance contracts, however, limit competition, since patients can not switch insurance plans if they received poor service.

There are many problems with the market for health insurance. I am not sure whether a single payer system is the answer or not, but Ms. McArdle’s arguments against the morality of a single payer system definitely add some doubt to claims that a single payer system is needed on moral grounds.

Russia’s mental hospitals

August 24, 2007 in Current Events | Permalink

Its not a great time to be a political dissident in Russia. Larisa Arap, who openly supported Gary Kasparov’s opposition group the United Civil Front, has just emerged from a 46-day imprisonment in two Russian psychiatric hospitals. The Independent reports (“Putin critic…“) that Mrs. Arap was forcibly interned with numerous unknown pills forced down her throat.  The article continues…

Her arrest stemmed from the publication of an article entitled “Madhouse,” exposing the ghoulish practices of a Russian psychiatric hospital in the Murmansk edition of his organisation’s newspaper, Dissenters’ March. She was interned in the very hospital she had written about.

The Chicago Tribune also reports on the practice of mental hospitalization in their piece titled “Your father’s Soviet Union.”  Journalist Alex Rodriguez writes:

…Russian authorities are backsliding into Soviet-style repression, using psychiatry to suppress political opponents. “We’re returning to this Soviet scenario when psychiatric institutions are used as punitive instruments,” said Yuri Savenko, president of the Independent Psychiatric Association of Russia. “I call this not even punitive psychiatry but police psychiatry, when the main aim is to protect the state rather than to treat sick people.”

The latest HWR is up!

August 23, 2007 in Carnivals | Permalink

The latest edition of the Health Wonk Review has been posted at the Medical Humanities Blog.

« Older entries