July 2009

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

Conventional Wisdom: I can’t believe it!  Obese individuals are causing the collapse of our healthcare system.  According to a report I saw in the AP, obese individuals cost us $1400 more per year in additional medical costs.  Let’s get them on the biggest loser and save our health care system!

The question is, does obesity cause sickness.  The original article from which the report is based claims that the cost to treat obese individuals has not changed between 1998 and 2006.  What has changed over this period is that a higher proportion of individuals are obese.

According to the article, “across all payers, obese people had medical spending that was $1,429 greater than spending for normal-weight people in 2006.” This figure was calculate by examining the differences between probability an obese person received a certain treatment compared to a healthy weighted person.  Then the average spending difference for that type of treatment was multiplied by this difference.  Thus, $1400, may be an underestimate if obese individuals have more serious hospital stays.

On the other hand, this study does not prove that obesity is the cause of these additional health care costs.  Let us think of the following thought experiment.  Assume the world is made up of 100 healthy people in year 2.  In year 2, half the people get sick, cannot exercise and gain weight.  Assume sick people incur $2000 in health care costs.  Now in this scenario, we would observe that sick people have higher health care costs.  Similarly, obese individuals have higher health care costs.  However, in this simple example, no one is innately obese; they only become obese from lack of exercise specifically due to their illness.  Thus, finding a correlation between obesity and medical costs does not prove that obesity causes increased medical costs. 

Further, obesity is only a problem when health insurance plans are community rated.  If obese individuals paid higher health insurance cost, then obese individuals would pay for their higher probability of becoming ill. Without community rating, however, any cost for additional medical costs to care for the obese will be shared among taxpayers.  This may unfortunately vilify the obese just as smokers have been villified in the U.S.

A paper by Boccuti and Moon (2003) believes it has. Annual per enrollee cost growth between 1970 and 2000 was 11.1% for private insurers, but only 9.7% for Medicare. Why is this?

While cost growth between for Medicare and private insurance very similar for hospital services, private health insurance has had much steeper cost growth for physician services. Does this mean that those with private health insurance get better care (e.g., shorter wait times for appointments, more physician selection) or worse (e.g., too many unnecessary services, uncoordinated care).

Methodological Points

The authors claim that three characteristics are essential to make this comparison accurate:

1. Compare cost growth on a per enrollee basis. This is important but is only valid if populations are fairly stable over time. The Medicare population over time likely changes little (everyone over 65 gets Medcare), but with SCHIP and Medicaid expansions, those covered by private insurance in 2009 likely look a lot different from people with private health insurance in 1989.
2. Calculate the cumulative impact of spending growth. By this, the authors mean that you shouldn’t overly rely one or two years of data. Short run fluctuations ofter even out over time.
3. Compare similar services. Ideally, the authors would compare the cost of treating each disease for Medicare patients and those with private insurance. Instead the authors settle on hospital and physician services. These two broad categories give a good overview of total cost increases, but may be of limited value of identifying for which diseases is cost growth a problem.

• Cristina Boccuti and Marilyn Moon (2003) “Comparing Medicare And Private Insurers: Growth Rates In Spending Over Three Decades” Health Affairs, 22(3): 230-237

This past week, Marketplace has had a great series of posts on health care. These include:

• Could we solve the healthcare crisis by convincing all hospitals to behave like the Cleveland Clinic? David Goodman of Dartmouth says “If many of these high-cost hospitals started practicing like the Cleveland clinic today, next year they would look like Chrysler. They would be bankrupt.” Goodman says that’s because Medicare and insurance companies pay doctors and hospitals on a fee-for-service basis.
• Watch out for the Swine Flu this fall: “This virus is still circulating in the Northern Hemisphere, which is extremely rare for influenza. And not only that but in the Southern Hemisphere, where there is winter, there’s a huge number of cases.”
• Nursing surplus?
• Inertia in Health Care Reform. This segment is so good, I’ve reprinted the entire transcript below with my favorite quips highlighted.

David Leonhardt is a columnist for The New York Times…

Ryssdal: You start your piece this morning with what might be the question about this whole debate. Why nobody can figure out, What’s in it for me? How come that’s so hard?

LEONHARDT: Well, in part, because this is a really complex piece of legislation, and this is an incredibly complex subject. And so I think if you ask people — and pollsters have done this — if you ask people are they in favor of covering the uninsured, they say yes by wide margins. But they look at it, and they look at the staggering sums that get tossed around, and they say to themselves, “Wait a second, why are we doing this?”

Ryssdal: Before we get to the legislation, let me ask you about the health care system itself. Why is it so resistant institutionally to any kind of change?

LEONHARDT: There’s a really funny thing with the health care system. We see the benefits, but we don’t see the costs. So health care is paid for by us, but it’s paid for in ways that we don’t see. It comes out of our paycheck and Medicare taxes. It comes out of our paycheck and insurance premiums. And that pays for the medical system. Then we go to the doctor, and we get some treatment. Or we go to the hospital and we have a procedure. We do see that. And so the services are very tangible, the costs are quite hidden. And as a result, what we want is more and more and more. But that is weighing on our wages, it’s weighing on our federal budget. It’s unsustainable. And yet, when you ask people how do they want to see health care change, they don’t often say we need to make it more efficient.

Ryssdal: There is a political question, many obviously political questions to be asked here. One of which is why nobody in this entire debate seems to be advocating for the people who are paying for it, that is, largely households and patients and taxpayers.

LEONHARDT: I think the White House would argue it is trying to take up that mantle. I don’t think it’s doing it enough. But the answer to your question is that there are very powerful lobbyists and very big industries for whom your waste is their income. And as a result, what you have is every time you propose something that’s going to take some waste out of the system, you have a huge outcry, whether it’s from the doctors, or the hospitals, or the drug makers. And what they do very cleverly is they don’t say, “Hey, don’t take our income away.” What they say is this will harm people. As a result, politically, Congress has not really been willing to stomach saying no to a lot of these parts of this industry.

Ryssdal: With all the groups who have so much invested in this, from pharmaceuticals, to hospitals, to doctors, to patients, how does the president cut through? How does he get a message out there that’s going to stick?

LEONHARDT: He starts with the advantage that he is the president, and the presidency comes with a megaphone unlike any other. But I think that he really needs to persuade people that the system now isn’t working that well. First of all, it’s so expensive that it really is robbing us of money we should otherwise have to pay for things. And when I say we I don’t mean the government, I mean actual families. It is a drag on our income. And the second thing is that, you know, the system really isn’t working as well as it should in terms of making us healthier. And there all these doctors out there who would love to spend time with patients, and help them counsel, and think about ways to be healthier. But the incentives aren’t for that, they’re for more procedures and more tests. So what I think the White House needs to do — for that matter the Democrats or the Republicans in Congress could do this — is they need to persuade people that the system isn’t working now, because it’s too expensive, and it isn’t delivering good enough results. And that we need a form of change that will deliver those two things. And that is broader than just covering the uninsured, but it really is the number one issue here.