March 2008

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Health Insurance: Why rent when you could own?

March 31, 2008 in Health Insurance, HSA | Permalink

Devon M. Herrick writes an article (“Why rent…“) creating a clever analogy comparing HSAs to equity in a house. He likens traditional health insurance to renting a home, while having a Health Savings Account (HSA) is more like owning the home. Making contributions to HSAs in essence gives you “equity” towards future health care expenses. On the other hand, if you do not use any medical care with traditional insurance, you lose all of your rent annual health insurance premium.

Mr. Herrick claims that he could cut his health insurance premiums by half if he had an HSA. There are 3 main reasons why health insurance premiums are lower. First, in a mechanical sense, health insurance plans are combined with HSAs which have higher deductibles. This means the insurance company will not pay for the first $1000 or so of medical care. Secondly, since there are high deductibles, utilization will decrease because of a reduction in the moral hazard problem. Finally, healthier people sort into HSAs and thus if everyone was compelled to have HSAs, health insurance prices would not decrease as much because there would be less advantageous selection.

As I have mentioned before in this blog, HSAs are highly unequal, since the rich 1) are the ones most likely to benefit from this legislation and 2) they have higher marginal tax rates and thus will receive a larger tax break for every dollar contributed.

Nevertheless, shifting more costs to the consumers and forcing consumers to face the true cost of medical procedures will help to reduce costs and to ensure than only necessary medical procedures are conducted.

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Pinal County Arizona Health Care Delivery System – 2008 Conference

March 31, 2008 in My Papers, Public Policy | Permalink

Last Friday I was the keynote speaker for the Pinal County (Arizona) Health Care Delivery System – 2008 Conference. The conference had an interesting mix of speakers (see agenda).

Speakers included Lisa Garcia, the Assistant County Manager of Health and Human Services, two academics from the University of Arizona (Gary Hart and Keith Joiner), and the CEO of a local community college (Dennis Jenkins). Also, CEOs of three hospitals (Casa Grande, Banner Ironwood, Northwest Medical Center Oro Valley), representatives from Blue Cross Blue Shield Arizona and the Director of the Arizona Medicaid and SCHIP program (AHCCCS) also presented.

My talk was titled “Health Care Economics: An Introduction.” The power point presentation is available here. The other speakers presentations are available here.

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Money for nothin…and chicks for free

March 30, 2008 in Hospitals, Medicaid/Medicare, Physician Compensation | Permalink

A recent article in the Journal of Health Economics found that increasing Medicare reimbursement may have no meaningful effect on hospital use or patient outcomes.

“There is widespread concern about the quality of health care in the US, and the effect of provider payments on the quality of care is an important and unsettled issue in this debate. The critical question is whether changes in provider payments affect health. To date there is relatively little research on this question. Here, we present evidence of the effect of plausibly exogenous changes in Medicare reimbursement – caused by geographical reclassification – on hospital staffing (nurses) and patient outcomes. We find that changes in Medicare reimbursement levels of approximately 10% have no meaningful effect on hospital use of resources or patient outcomes.“ 

Who are Health Economists? What do they do?

March 27, 2008 in Economics - General | Permalink

Most people do not understand what a health economist is. Where do they work? What do they do? How do they spend their time?  How are they trained?

A paper by Morrisey and Cawley (Health Econ 2008) attempts to answer this question. The authors conducted an online survey to achieve a better understanding of what health economists do.

Training

Ninety-three percent of health economists have a Ph.D. A few health economists have an MD (2.6%), an RN (1%) or a JD (<1%) in addition to their PhD. Of those with a Ph.D., 72% have a Ph.D. in Economics. Below are a list of the economics departments that have trained the most health economists in the sample:

Institution Health Economists trained in the sample
Wisconsin 16
Chicago 11
Michigan 9
Yale 9
Harvard 8
MIT 8
Univ. of Washington 8
Maryland 7
CUNY 7
Stanford 6
UC-Berkeley 6
Boston University 5
Washington Univ. (St. Louis) 5
   

Seventy-six percent of health economists wrote a health related dissertation, even though 2/3 of graduate programs lacked a formal health economics field. For instance, at UCSD I am writing my dissertation on health economics even though there is not established program.

Employment

Where do health economists work? Most work in academia (64%), but a large percentage also work for the government (12%), NGOs (15%) or the private sector (9%). Of those who are academically employed, below is a chart detailing where their principal appointment is located.

Appointment Percentage
Public Health 26%
Medicine 18%
Arts & Science 17%
Business 16%
Public Policy 6%
Other 17%
Total 100%
   
Economics Dept. 24%
   

For those who work in public health or medical school about 50% of their salary is made up from funding from external grants and contracts.

Research Interest

Below is a chart detailing the subspecialty of the health economists in the survey.  Respondents could choose multiple options.

Subspeciality Percentage
Behavior of Individuals (e.g.: Labor Econ) 50%
Behavior of Firms (e.g.: Industrial Organization) 34%
Government policies (e.g.: Public Finance) 50%
Health Insurance 48%
Outcomes Research (CEA, CBA, Burden of Illness) 50%
Other 31%

After reading this post, hopefully you now have some idea of who health economists are and what they do.

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Immigrants reduce health care costs?

March 26, 2008 in Nonphysician Clinicians, Physician Compensation, Supply of Medical Services | Permalink

David Williams of the Health Business Blog reviews an article from the Boston Globe (“Immigrants…“)  stating that immigrants reduce the cost of health care.  How can this be with so many immigrants relying on government programs and free clinics to receive their care?

While it is true that immigrants are consumers of medical care, they are also producers as well.  A study of the health care workforce in Massachusetts finds that 40% of pharmacists, 28% of physician assistants, 22% of opticians, 21% of licensed practical and vocational nurses, 17% of dentists and 14% of paramedics are foreign born workers.  Twenty-eight percent of physicians and surgeons are foreign born.

An increased supply of health care workers from foreign countries can help decrease labor costs for medical care.

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Are economists brain damaged?

March 26, 2008 in Economics - General | Permalink

Many economists espouse utilitarianism as a superior ethical framework to proposed alternatives. A paper in Nature magazine finds that “Damage to the prefrontal cortex increases utilitarian moral judgements.”

Maybe there is some merit to the paper…economists have always been a strange breed.

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Cavalcade of Risk #48

March 26, 2008 in Carnivals | Permalink

The latest edition of the Cavalcade of Risk is up at Insurance Yak.

Some of my favorite articles include:

John DiNardo hates Freakonomics

March 26, 2008 in Economics - General, Obesity | Permalink

Freakonomics by Steven Levitt and Stephen J. Dubner is an extremely popular book that has made economics a (somewhat) sexy topic of discussion. Levitt’s research makes economics exciting and his quirky, controversial studies make interesting reading.

John DiNardo, however, thinks that even Freakonomics is “interesting” and “entertaining,” it may not be revealing truths. Dr. DiNardo has written three critical reviews of the book. DiNardo’s criticisms call into doubt the meaning of some of the conclusions derived from Levitt’s research. For instance, DiNardo discusses the logical meaning the causal effect of obesity on health.

Nonetheless, I would argue that it is unlikely that anyone will devise a severe test of the proposition that obesity causes an increase in all-cause mortality. Simply put, the effect of obesity (or of ideal weight) is inextricably implementation specific. That is, it is not helpful to think about the “effect” of obesity for the same reason it is not helpful to debate the “causal effect of race on income”(Granger 1986). Many of us suspect, for example, that encouraging obese individuals to “starve themselves” for short periods of time might help one lose weight, but wouldn’t necessarily promote longevity (although it might, who knows? ).

Similarly, we might expect weight loss that results from increased physical activity to be more protective than
weight loss that results from increased life stress. The experience in the U.S. with the drugs fenfluramine and dexfenfluramine (Redux) is a case in point. Despite good evidence that the causal effect of taking Redux was weight loss, the drugs were pulled from the market because a “side effect” of the medication was an increase in potentially serious heart problems (Food and [Drug] Administration 1997) . Indeed, it would appear that the presumption that obesity is a cause of ill health made it virtually impossible to debate whether non–obesity was the cause of the increased heart problems. Rather, the consensus seems to be that the heart problems were not caused by non–obesity, but rather by Redux’s “side effects.”

My point is simple: when each way of “assigning” obesity that we can imagine would be expected to produce a different effect on all–cause mortality or other outcome, it is not at all clear that it is helpful to debate the “effect of obesity.” It seems more intelligible (and more policy relevant) to discuss the effect of Redux or exercise than it is to talk about the “effect” of obesity.

One study that DiNardo does hold up as an example of fine research is Cullen, Jacob and Levitt (Econometrica 2006). This paper was written by Levitt as well as my dissertation advisor Julie Cullen.

AEA Resources

March 25, 2008 in Economics - General | Permalink

The American Economic Association (AEA) has some great resources for economists.  For instance,  it has links to:

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Medicare to surpass Social Security expenditures in 2028

March 25, 2008 in Medicaid/Medicare | Permalink

The [Medicare Hospital Insurance Trust] fund also continues to fail our long-range test of close actuarial balance by a wide margin. The projected date of HI Trust Fund exhaustion is 2019, the same as in last year’s report, when dedicated revenues would be sufficient to pay only 78 percent of HI costs. Projected HI dedicated revenues fall short of outlays in this and all future years. ”

Who is this scare-mongering quotation from?  Rush Limbaugh?  Conservative think tanks?  Fox News?

Actually, this message is from the Social Security and Medicare Boards of Trustees 2008 Annual Report.  Currently, Medicare accounts for 3.2% of GDP.  The authors of the report project that by by 2028, Medicare expenditures will surpass Social Security expenditures.  By 2082, Medicare expenditures will account for 10.8% of GDP!

What is to be done?  We can increase taxes to levels that in the long run would cripple the economy.  We could cut the number of people receiving Medicare benefits.  For instance, we could increase the age at which people are eligible for Medicare or limit Medicare benefits to only certain groups (e.g.: the poor, those who are eligible for Social Security benefits, etc.).  The government could reduce the generosity of the plans by either shifting more costs to patients (i.e.: increasing co-pays and deductibles), or reduce the generosity of the benefit package (i.e.: rationing).  Or we could scrap Medicare all together and start over (e.g.: a voucher program, no elderly health insurance, mandatory savings for the purchase of health insurance later in life).

All of these ways to solve the Medicare crisis have pros and cons and those adversely affected by any change are likely to vehemently protest any reform.  Nevertheless, Medicare as it currently is structured is not a fiscally sustainable program.

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