May 2010

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Homegrown Terror

May 11, 2010 in Economics - General | 1 comment

On 60 Minutes this week, I saw a piece called “Uncovering the Roots of Homegrown Terrorism” which documents the rise in the number of American citizens who are receiving training in Pakistan for Terrorists operations.  Many of these ‘homegrown terrorists’ are ethnically Pakistani, though certainly not all.  The story also documents a similar problem with some young Somalis in Minneapolis.

This leads to the natural (often unasked) question: What are the odds that the Pakistani-looking individual walking down the street is in fact a suicide bomber or terrorist.  The answer, is very low.

To illustrate, let’s assume that 70% of all terrorists are of Pakistani decent.  If there are 1000 American-born terrorists currently on U.S. soil, then this implies that there are 700 Pakistani-American terrorists.  [I made up the 1000 figure.  This figure might be too low, especially if we define a terrorists as a young men with anti-establishment beliefs; if one were to apply this definition, however, it would include almost every teenager in the country.  On the other hand, I doubt that there are 1000 American citizens who would actually blow themselves up to prove a point, despite the number of people on the internet claiming they would do so.] Since there are about 210,000 Pakistani-Americans in the U.S., the chance than any one of them is a terrorist is only 0.3% (700/210,000). This means that if you see 100 Pakistanis in a day, the chances even one of them is a terrorist is very low.

To make a comparison, the incarceration rate in the U.S. is 0.7%.  In fact, 3.2% of all U.S. adult residents (or 1 in every 31 adults) will be on probation, in jail or prison, or on parole at year-end.  Thus, it is more likely that you know an American-born criminal than a Pakistani-American terrorist.

While terrorism is a serious concern to American security, the chances the Pakistani man sitting next to you on the plane is a terrorist is in fact extremely low.

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When is more less?

May 10, 2010 in Quality, Supply of Medical Services | No comments

Do more intensive medical services improve patient satisfaction?  Not according to Mittler et al. (2010):

Overall, higher intensity use was associated (p<.05) with worse (seven measures) or no better care experiences (two measures).  In higher-intensity markets, Medicare FFS and MA beneficiaries reported more problems getting care quickly and less helpful office staff. However, Medicare FFS beneficiaries in higher-intensity markets reported higher overall ratings of their personal physician and main specialist. Medicare MA beneficiaries in higher-intensity markets also reported worse quality of communication with physicians, ability to get needed care, and overall ratings of care.

Medicare beneficiaries in markets characterized by high service use did not report better experiences with care. This trend was strongest for those in managed care.

More intensive medicine involves relatively more capital and less labor in the provision of  medical services.  If more labor inputs are correlated with higher patient satisfaction scores, areas with less intensive medical care may benefit in the rankings due to longer patient-physician interactions.  Whether or not the marginal value of an additional unit of capital compared to labor is most beneficial to health outcomes, however, has yet to be determined.

Do Economists Support FDA Pre-approval of Drugs?

May 9, 2010 in Pharmaceuticals, Public Health, Regulation | No comments

Conventional wisdom holds that economists advocate for reducing regulation on most policy arenas.  Regulation imposes costs and businesses and is often ineffective.  Further, as technology and market conditions change, regulations which were originally welfare enhancing can now become archane.

The public generally views the FDA’s pre-approval as a worthwhile endeavor.  The goal of FDA pre-approval is to protect consumers against unsafe and/or ineffective drugs.  In the world of neo-classical economics, agents have perfect information about drug quality and the role for the FDA disappears.  Even if information is not perfectly observed, the FDA’s ability to restrict the entry of potentially useful drugs into the market can be welfare destroying.  Certifying drugs as safe rather than prohibiting them through regulations may be a preferable form of spreading information.

In a recent survey of 44 leading economists, 23 support or strongly support pre-market approval of new pharmaceuticals and devices while 15 where opposed or strongly opposed (6 were neutral).  The key rationale behind the support of pre-market approval was the problem of imperfect information and also the public goods aspect of knowledge.  Fewer economists supported the notion that the government has superior ability to assure safety and  efficacy.

The majority of economists also believe:

  • the effect of pre-market approval in suppressing would-have-been benefits is often or typically overstated in public discourse.
  • doctors do not systematically error when prescribing medicines.
  • replacing the current FDA system with a simple physician prescription requirement for new drugs and devices is a bad idea
  • The current FDA system increase the amount of knowledge available on new drugs.

Economists were split as to whether drugs approved by European, Japanese, and Canadian authorities should automatically be approved for use in the U.S.

This survey shows that economists do not have a clear consensus answer to the question of whether there is “a sound market-failure rationale for the banned-till-permitted policy for drugs and devices.“

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Explaining Any-willing-provider and Freedom-of-choice laws

May 7, 2010 in Managed Care, Regulation | 1 comment

Hellinger (1995) defines any-willing-provider (AWP) and freedom-of-choice (FOC) laws.  These laws have been enacted by a number of states.

“AWP laws require managed care plans to accept any qualified provider who is willing to accept the terms and conditions of a managed care plan. These laws do not require managed care plans to contract with all providers. However, they do require managed care plans to explicitly state evaluation criteria and ensure “due process” for providers wishing to contract with the plan.”

“FOC laws permit an enrollee to obtain reimbursable health care services from any qualified provider even if the provider has not signed a contract with the managed care plan. These laws often compel managed care plans to pay the same amount to a nonnetwork provider chosen by an enrollee as they pay to a network provider. Yet this does not guarantee that an enrollee will incur the same out-of-pocket costs. Enrollees who obtain all of their care from non-network providers pay the fixed copayment per service (or a fixed percentage of covered charges) their plan requires, plus any charges in excess of the plan’s  overed charges.”

Michael Morrisey recommends repealing these two laws to increase competition and I tend to agree with him.  Both laws limit managed care organizations’ ability to effectively negotiate on price.

Cavalcade of Risk: The Menu

May 5, 2010 in Carnivals | 8 comments

Every time you visit a restaurant you face a risk. No I’m not talking about the risk of E. coli or some other disease.  I’m talking about the risk of whether to try something new on the menu.  If you’re at a Thai restaurant, you might know you like Pad Thai, but do you take the risk and order the Tom Kha?  How much do you value novelty compared against the risk of having a disappointing meal?

In this edition of the Cavalcade of Risk, I’ve prepared  a diverse menu for your reading pleasure.  I hope you stray from your typical areas and risk learning something new from the blog posts below.  On this menu, I can guarantee you won’t leave with a bad taste in your mouth.

APPETIZERS

HEALTHY MAIN COURSES

HOUSE SPECIALTIES

DESSERT

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Health Care Reform in Germany

May 4, 2010 in International Health Care Systems | 1 comment

Health care in Germany achieves universal health care by mandating that individuals enroll in a sickness fund.  The German government requires lower and middle class individuals to enroll in the sickness funds, but richer individuals can opt out and choose to purchase their own private health insurance.  Approximated 9% of Germans have supplemental insurance; these private, supplemental insurance covers items not paid for in the sickness fund benefit package.  Most Germans like this system.

Yet the Economist reports that all is not  well in the German health care system.  Like Medicare in the U.S., the German sickness funds are funded by payroll taxes.  However, with an aging population and stagnant wage growth from the economic slowdown, paying for the increasing cost of medical care is becoming a burden.   Health care spending has not risen as quickly as in the U.S., party due to reforms such as the implementation of “disease management” programs to standardise care for ailments like diabetes, as well as lump-sum payments to hospitals that discourage over-treatment.

Philipp Rösler, the federal health minister, plans to institute a number of reforms to the health care system.  These include: 1) creating an agency to determine drug effectiveness relative to existing ones, and 2) “vouchers.”

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Health Care Reform in Massachusetts

May 3, 2010 in Health Insurance, Regulation | 7 comments

With healthcare reform having passed, how will the health insurance market look a few years from now?  Although Mitt Romney may (or may not) deny it, Massachusetts has been a model for President Obama’s health reform bill.  In 2006, Massachusetts passed its own health reform and when the share of uninsured residents was at 14%.  By 2008, this figure had fallen to 2.6%.  Let us now take a look at the specific reforms Massachusetts implement to increase coverage.

Based on the research of Doonan and Tull (2010), one can divide the Massachusetts expansion efforts into five broad categories.

  • Medicaid Expansion. Massachusetts expanded Medicaid eligibility to all children below 300% of the federal poverty line (FPL) and all adults below 150% of the FPL.
  • New subsidized health insurance exchange.  Commonwealth Care is a program that provides aces to health insurance for individuals with incomes between 150% -300% FPL.  The government subsidizes these plans depending on the individual’s income.  The state moved individuals who were previously in the stat’s uncompensated care pool (UCP) to Commonwealth Care by restructuring the UCP so that copays, deductibles, and premiums were similar to those offered in Commonwealth Care.
  • Insurance Exchange for Individuals and Small Businesses.  Commonwealth Choice is a program that provides a number of unsubsidized insurance plans to individuals and small businesses (with 50 or fewer employees).
  • Mandates.  The Massachusetts legislature enacted an employer mandate and an individual mandate.  The employer mandate stats that employers with more than 50 people who do not provide insurance must pay a “fair share” assessment of $295/employee/year.  The state also mandates that all residents purchase insurance through an individual mandate.  Each year, each Massachusetts resident must submit a Schedule HC to the Massachusetts Department of Revenue to verify that they do indeed have Connector-approved insurance.  After a 90 day grace period, individuals are penalized each month that they are not insurance in the previous tax year.  The penalty for not having health insurance in Massachusetts is generally much larger than what Congress is currently considering.
  • Insurance Regulation.  The Commonwealth Health Insurance Connector Authority (the Connector) created minimum standards for any insurance product to be offered in the state.  Thus, individuals could not bypass the individual mandate by taking out a very inexpensive health insurance product with a $50,000 deductible.  The Connector Board recommended that the minimum credible coverage (MCC) include preventive and primary care, emergency services, hospitalization benefits, ambulatory patient services, mental health services, and prescription drug coverage.  Doonan and Tull (2010) claim that the mandated benefits were fairly generous, but not out line with what private insurance companies previously had offered.  Because there is more heterogeneity in insurance products across the country than within Massachusetts, Congress would have a much more difficult time determining a valid coverage minimum that did Massachusetts.

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Failure and the Problem with Science

May 1, 2010 in Miscellaneous | 1 comment

“The fact is, we carefully edit our reality, searching for evidence that confirms what we already believe. Although we pretend we’re empiricists — our views dictated by nothing but the facts — we’re actually blinkered, especially when it comes to information that contradicts our theories. The problem with science, then, isn’t that most experiments fail — it’s that most failures are ignored.”

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