The healthiest 76% of Medicare beneficiaries consume only 14% of program expenditures. The sickest 15% consume 75% of Medicare expenditures.
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Tags: Medicare, Skewed Distribution
Why do people change health plans? Of course, the most obvious reasons are moving, changing jobs, or qualifying for Medicare. However, some people change health plans even when they remain in the same job. Why is this? A working paper by Cutler, Lincoln and Zeckhauser (2009) give the following explanations:
- Adverse selection, the movement of the less healthy to more generous plans;
- Adverse retention, the tendency for people to stay where they are when they get sick;
- Aging in place, where lack of all movement makes plans with initially older enrollees increase in cost over time.
The authors use data 1994-2004 data from Massachusetts state workers and from workers enrolled in the state’s health insurance system, the Group Insurance Commission. They find that aging in place and adverse selection are both quantitatively important.
Miller-McCune also has a nice article on this research.
- Source: Cutler, Lincoln and Zeckhauser (2009) “Selection Stories: Understanding Movement Across Health Plans.” HKS Faculty Research Working Paper Series RWP09-022, July 2009.
Problems:
- Malpractice Insurance is expensive.
- Medical errors are associated with 98,000 deaths every year [more than twice the deaths from car accidents by some estimates.]
- About two-thirds of the guidelines developed by AHPR between 1990 and 1996 were out of date with current research by 2001.
Solutions:
One solution is to enact damage caps. These are limits placed on awards in malpractice lawsuits. This would certainly decrease malpractice insurance, but would not incentivize doctors to take more care when treating a patient.
Ronen Avraham proposed private guideline insurance. Here’s the theory:
- Doctors or groups of doctors adopt guideline insurance. If the doctor follows the guidelines, he is not liable for any malpractice damages. If he does not follow the guidelines, then he is liable for damages.
- The private ‘guideline insurance’ company is liable for the quality of the guidelines. If the guidelines are poor, a patient can bring a suit against the guideline insurance companies.
- Doctors will have an incentive to choose the lowest cost guideline insurance company. Guidelines insurance companies bring down their cost by adopting the most up-to-date, cost-effective guidelines.
Do you think this could work? More information is available here and here.
Source: Avraham, Ronen (2009) “Private and Competitive Regulation of Medicine,” The Economists’ Voice: Vol. 6 : Iss. 8, Article 2.
Tags: Guidelines, Malpractice
“…being president of the University of California is like being manager of a cemetery: there are many people under you, but no one is listening. I listen to them.”
- Mark Yudof, President of the University of California , N.Y. Times 24 Sept. 2009.
Tags: Academics, UCSD, University of California
Robert Fogel has a very well-written, well thought-out piece in The American on the topic of Forecasting the Cost of U.S. Healthcare. The article breaks down the forces affecting the future cost of medicine into five categories. The section below list each category which Dr. Fogel’s arguments and my comments mixed in.
- A likely continued downward trend in age-specific prevalence rates of chronic diseases and disabilities. According to the article “First, there is now convincing evidence that prevalence rates of chronic diseases declined during the 20th century. Second, the rate of decline in these prevalence rates has accelerated. In the American case, prevalence rates declined at a rate of about 1.0 percent per annum between 1910 and 1980. Between the early 1980s and 1989, they declined at about 1.2 percent per annum.” Most importantly, Fogel comments on how the disease burden will shift. As life expectancy increases, will cost burdens be similar but simple shifted later in life? Will healthcare utilization decrease at every age? How change in life expectancy affect health care utilization is difficult to predict.
- The rate of change in the cost of treating these conditions. For me, this is the main cost driver. Technological change will improve the quality, but also increase the cost of treating each disease.
- The increase in the number and proportion of the population that is elderly. Fogel claims that this will have a small affect on rising health spending, “on the order of 10 percent.”
- Changes in the overall U.S. population. Changes in overall population will affect total spending levels; if the U.S. population doubles and nothing else changes, it is likely that GDP and health spending will double. Thus, population growth will affect nominal medical spending, but should have a small affect on per-capita medical expenses.
- The rate of growth of per capita income. When a society gets richer, it can afford more things. One major item that societies tend to purchase more of is health care. How heathcare expenditures evolve alongside economic growth is captured in the concept of income elasticity (i.e., by what percentage will I increase spending if my income goes up by 10%?). Fogel claims that income elasticity for medical care is 1.6 (i.e., society will spend 16% more on health care when its income goes up by 10%). According to Borger et al. (2008), empirical income elasticity estimates range between 0 and 1.6. Thus, Fogel choose a figure on the high end. However, most empiricial estimates of income elasticity are above one, meaning that the share of GDP dedicated to health expenditures will increase as society gets richer.
Overall, Fogel claims that because income elasticity is high, one need not worry about rising health care costs. “Consequently, there is no need to suppress the demand for healthcare. Expenditures on healthcare are driven by demand, which is spurred by income and by advances in biotechnology that make health interventions increasingly effective.”
On the other hand, it is important that this money is used wisely. Sick patients who want a miracle will pay nearly any price for treatment. If the doctor offers a fancy, high-tech treatment at twice the cost of an equally effective basic treatment, the patient may decide to go for the high-tech apparatus. The thinking is, it’s my life and I want the best technology available. However, if this high-cost high-tech equipment was not made available as a choice–again, assuming it was not better than the basic treatment–I would guess that the patient would be perfectly happy with the effective basic treatment. This is the phenomenon of supplier-induced demand that Fogel ignores.
The Healthcare Economist’s Take: Increased medical spending is not a problem in and of itself as long as those additional dollars are going towards productive, cost-effective treatment.
- Can architectural design improve primary care?
- What is the difference between an individual mandate and a tax increase?
- Health care lessons from Israel.
- Factors that influence the adoption of electronic health records.
- Is the creation of an “independent” cost-effectiveness agency possible?
Researches at UNC found that marriage may make you happy and healthy but fat as well. If you’ve been a loyal reader of the Healthcare Economist, however, you knew that already.
Jason Shafrin’s research on marriage and weight gain already showed that marriage leads to increased weight gain. In fact, the research demonstrated that one reason marriage causes weight gain is that individual who get married experience a decreased incentive to maintain their weight in order to attract a significant other (read the paper). These findings were also presented at the Western Economic Association International (WEAI) conference in Vancouver this June. Below is an abstract of the paper:
Married individuals weigh more on average than non-married individuals. We suggest that exiting the dating market decreases ones incentive to maintain their appearance and leads to an increase in body weight. We hypothesize that it is most difficult for individuals to exit a traditional marriage, and easiest for individuals to exit if the couple is cohabitating but not legally married. Using a 14-year panel data set, we test whether or not the ease of exiting a domestic relationship affects weight gain. For men, we find that the type of domestic relationship has little impact on weight gain. For women, however, marriage leads to a 2.4 kg weight gain compared to cohabitating.
Tags: Marriage, Obesity, Weight Gain
The latest edition of the Cavalcade of Risk has been posted at Wisdom from Wenchypoo’s Mental Wastebasket.
Tags: CoR
Yesterday, the winners of the prestigious MacArthur ‘Genius’ Fellowships were unveiled. Twenty winners received $500,000 of funding over 5 years with no strings attached. Some of the winers include:
- Esther Duflo is a development economist exploring the social and economic forces perpetuating the cycle of poverty for the poorest peoples in South Asia and Africa.. She is the co-founder of the Abdul Latif Jameel Poverty Action Lab at MIT.
- Rebecca Onie founded Project HEALTH which works to overcome the barriers for low-income families to good health outcomes that are often the result of apparently unrelated constraints, such as child care, transportation, housing, food, education, and legal advocacy. She also works with clinics to help train providers to work on identifying patients socio-economic needs.
- Jill Seaman is a physician committed to delivering and improving treatment for infectious diseases endemic to Southern Sudan, one of the most remote, impoverished, and war-torn regions of the world. She first began treating the Nuer tribespeople of Sudan’s Western Upper Nile province in 1989, as an epidemic of visceral leishmaniasis — a deadly, parasite-borne infection — devastated the already conflict-ravaged and malnourished population. In the midst of a civil war, she worked with Médecins Sans Frontières (Doctors Without Borders) to set up makeshift clinics and offer the only treatment option for an area with no health care infrastructure, electricity, or running water.
Tags: Genius Grants, MacArthur Grants
Non linearities and the Black Swan
September 25, 2009 in Books, Econometrics | 1 comment
The book Black Swan by Nassim Nicholas Taleb is an interesting book about probability outside of the traditional Gaussian framework and how paradigm changing often arise. The highlight of the book is its philosophy of the black swan, and its unknown unknown. The book also includes discussion of behavioral economics and tries to discredit Gaussian statistics. The book is interesting but rambles somewhat. Further, Taleb writes in a condescending manner disparaging other intellectuals and experts. Although Taleb does make some good points but the negative tone does become tiresome.
The Turkey Problem
The crux of the book can be understood by looking at the following series. This series represents the weight of the turkey over 30 days.
Assume you are a turkey, what would you predict would happen to your weight over then next 15 days. Using ordinary least squares, one would predict that the turkey would continue to grow at 1/4 pound per day. Let us see what happened in reality.
We see that a “black swan” event has a occurred; one that was outside the paradigm one would establish based on past data. We see that on day number 41, the turkey is slaughtered. This is a huge paradigm shift from the point of view of the turkey. One can see that relying on past data to predict the future will be highly inaccurate in the presences of these black swans.
Other Non-linearities
Let us look at another seemingly linerar series.
How would you predict the series would continue into the future? Using linear extrapolation techniques, one would predict the series would increase linearly ad infinitum. However, let us examine the true data generating process.
We can see that the data come from a sine function.
The key insight of Taleb’s book is that these non-linearities, paradigm shifts and black swans occur all the time. Further, they are responsible for most of the innovatiations and important events in history. Thus, ignoring black swans can be perilious. Taleb’s message is one of humility. It is exceedingly difficult to predict the future. A sure thing is rarely ever such. Thus, we should view expert opinion with some skepticism and embrace–rather than reject–uncertainty.
Tags: Black Swan, non-linearities