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The Health Affairs blog has an interesting article on why Arnold Schwarzenegger’s health care reform plan for California has been shelved.
As General Eric Shinseki, former Chief of Staff, U. S. Army, said “If you don’t like change, you’re going to like irrelevance even less.”
Can we think of issues related to violent crime as basically similar to that of a contagious disease? This is the question an article in the N.Y. Times Magazine (”Blocking the Transmission of Violence“) attempts to answer.
Violence may spread like an epidemic; murders lead to revenge killings, which lead to more revenge killings. Stopping the “transmission” of violence at its source is the goal of Gary Slutkin and his CeaseFire organization. “CeaseFire tries to deal with these quarrels on the front end. [Interrupters'] job is to suss out smoldering disputes and to intervene before matters get out of hand.”
This is a radical approach, but will it work?
Academic journals are places where medical practitioners can go to view the latest, most cutting-edge, medical technologies. These journals are peer reviewed and are supposed to be places where rigorous, unbiased research is conducted. Some of these articles may not be as unbiased as once thought.
NPR’s Marketplace reports (”Drug Companies…“) that drug companies have been distributing academic journal articles to doctors in order to persuade them to use their drug. Prima facie, this may seem to be an innocuous practice–having drug reps show doctors cutting edge techniques helps to increase the physician’s knowledge. However, it has been found that some of these articles alledgedly written by academic researchers are actually ghostwritten by pharmaceutical companies.
Joseph Ross found when he led a study on medical ghostwriting. He says, in the best case, the drug companies provide information to independent experts and then get out of the way. But . . .
JOSEPH ROSS: Who knows how often that actually happens. The worst case scenario is, a company says, “We’ll have a medical publishing company handle everything. They’ll write the papers, we’ll approve it before we even send it to the doctors. Then we’ll let the doctors lightly edited it if they want to, and then we’ll send it out with their names on top.”
The New York Times reports (”Dental Clinics…“) that the American Dental Association’s branch in Alaska has filed a lawsuit to stop dental therapists from practicing.
“The dental associations say they simply want to be sure that patients do not receive substandard care. But some dentists in public health programs contend that dentists in private practice consider therapists low-cost competition. In Alaska, the federally financed program that supplies care to Alaska Natives pays therapists about $60,000 a year, one-half to one-third of what dentists typically earn.”
Who are dental therapists? Generally, one can think of them as similar to physician assistants or nurse practitioners in the dental world. To qualify as a dental therapist, candidates must undergo a two year training program. In Alaska, dental therapists may practice basic surgical procedures such as drilling and filling cavities and performing routine tooth extractions. Dental therapists may be cheaper, but are they doing a good job?
“So far, the program appears to be providing high-quality care, according to one study in 2006. The study, by the Baylor College of Dentistry, looked at about 600 procedures in more than 400 patients and found that the quality of procedures performed by therapists was no different from that provided by dentists.”
Medicare is inefficient and expensive. Medicare has been expanded through Medicare Part D, which covers prescription drugs. Can expanding an inefficient, expensive system be a good thing? Gary Becker argues yes.
Since drugs have high fixed research costs but low marginal costs, having the government pay for drugs can increase innovation. In fact, a working paper by Blume-Kohout and Sood (2008) finds that “…the passage of Medicare Part D was associated with significant increases in pharmaceutical R&D, especially for classes with high elderly market share.” Further, the fact that there are high fixed costs and low marginal cost means that passing Medicare Part D will likely reduce the average cost of drugs. According to Becker:
This property of the cost of producing drugs has two extremely important implications for Medicare costs. The first is that drugs are an efficient way to treat diseases and disorders that hit a large number of men and women since then the fixed costs can be spread over a larger number of users. This makes them particularly valuable to the elderly who are a growing share of the population in the United States and all other developed countries, and in many developing countries as well, including China…
Drugs are also valuable in inefficient delivery systems that have trouble choking off medical treatments that would not pass a benefit-cost calculation. This would characterize systems with highly subsidized medical care, with excessively low deductibles, or with rules that cannot deny treatments to the very elderly and those close to dying who would benefit only a little from receiving treatment. Surgery, hospitalization, and close physician supervision are expensive ways to treat seniors who do not benefit much from this care since the cost of these procedures tend to rise in proportion to the number treated. On the other hand, while treating seniors with drugs sometimes also may not add much in the way of benefits, the additional cost per user would be much smaller than the average cost per user.
Medicare Part D may increase efficiency in the “second-best” world in which we live today.
People who are sick are not able to shop around for medical care. This statement may be true in some cases, but not for the majority of illnesses. Those without insurance are especially sensitive to the price of medical care and are in fact very likely to shop for the combination of the lowest price, best quality care they can afford.
The RNCentral website gives some tips to the uninsured regarding how they can increase their access to care, improve the quality of care they are receiving, and reduce their out of pocket expenditures. One interesting company is TelaDoc. This firm provides a service which enables patients to phone a doctor 24 hours a day, 7 days a week to receive diagnosis and treatment information. While TelaDoc won’t cure cancer, it will help patients to find the correct treatment for minor illnesses.
Michael Cannon reports (”Pennsylvania Proposes to Defraud Non-Pennsylvanians“) that Pennsylvania is manipulating the Medicaid system. Pennsylvania is increasing Medicaid payments to hospitals (thus increasing the amount of federal matching funds) with one hand, but with the other is creating a tax on “profits of general hospitals in two counties, Allegheny [Pittsburgh] and Philadelphia.”
Thus, the hospitals will be left with the same profit level–higher Medicaid payments will be eaten away by the special tax levy–however, Pennsylvania will have to pay a lower percentage of the cost because of the additional matching funds. Who is hurt? Only the taxpayers in those other 49 states.
Mr. Cannon analyzes the situation more acerbically: “…the federal Medicaid program allows Pennsylvania to siphon money away from other states. That sound you hear is your pocket being picked.”
The N.Y. Times (”…No Rhyme or Reason“) has an interesting essay about how doctors financial incentives pressure them to run too many tests on patients and refer them to too many specialists.
Doctors are usually reimbursed for whatever they bill. As reimbursement rates have declined in recent years, most doctors have adapted by increasing the quantity of services. If you cut the amount of air you take in per breath, the only way to maintain ventilation is to breathe faster.
The Healthcare Economist believes that money matters in medical matters. My research regarding specialist compensation shows that financial compensation has a huge impact on surgery rates.
Musing on the modern propensity for physicians to overtreat their patients, one hospital executive said:
“The hospital is a great place to be when you are sick…[b]ut I don’t want my mother in here five minutes longer than she needs to be.”
Megan McArdle has an interesting post (”Putting a price on health care“) about a U.S. single payer system. If a smaller country like Switzerland decided to have a single payer system, this likely would not create too large a distortion regarding prices or innovation. The U.S. would still have a (somewhat) private health care and the Swiss could learn the prices they should charge for different medical procedures. Also, the Swiss don’t have to worry about testing out innovation. The U.S. can advance new technologies. If the new medical procedures are valuable, the Swiss will adopt them. If not, the Swiss won’t. Of course, basic research in universities can provide much medical innovation, but if there is price control in a single payer system, innovation from private firms would likely decrease.
McArdle notes:
“Europe’s governments operate their health care systems in the context of an existing US market that provides information about demand for new treatments (and of course I would argue, also the new treatments). They don’t use that price information to set what they pay for drugs, but it does filter through to their markets–for example, more widespread use of Herceptin for breast cancer in the US is putting pressure on the British government to provide it. I think an American shift to single-payer would be more problematic than the European example for a variety of reasons related to our government structure. But one important reason is that if we did, we’d have no where left to get prices from.”
TechCrunch reports on a Facebook application that alerts potential donors to donate blood in times of shortage. Take all Types (TAT) is the name of the innovative non-profit which invented this application. The TAT website wisely states:
“There are always shortages of blood throughout the nation, even though there are plenty of potential donors out there. After All, we all have blood we can share. The main issue is communication!“
The latest edition of the Health Wonk Review is up at Workers Comp Insider.
VentureBeat (”…Health 2.0…“) profiles six innovative Health 2.0 firms which were at the 2008 Health 2.0 Conference in San Diego. Each firm on the list aims to reinvent the doctor patient relationship.
Included on the list is Carol.com which allows patients to do medical shopping. PharmaSurveyor allows users to enter the medications they are on and see if there are any harmful drug interactions.
There are lots of innovative ideas coming down the Health 2.0 pipeline.
How much money do you need to save for retirement? $100,000? $500,000? $1,000,000? $5,000,000?
Well whatever your figure is, you need to tack on an extra quarter of a million dollars in order to cover your health care costs in retirement. The Boston Globe (”Fidelity…“) reports that Fidelity now estimates that a couple will need to have saved $225,000 in order to pay for health care costs during retirement. When Fidelity initially conducted this study in 2002, the figure was $160,000, which means necessary savings for health care in retirement has increased by almost 6% per year.
You may think that Fidelity’s numbers are biased upwards since Fidelity has an interest in making people save more money (they make a commission off their investments). Boston College’s Center for Retirement Research also conducted a similar study, however, and found that a couple will need to have saved at least $206,000.
These figures are extremely high, especially considering that they take into account the fact that all of these people will be covered by Medicare. According to BC’s Center for Retirement Research currently 60% of older workers are “at risk” of being unable to maintain their standard of living in retirement.
[Hat tip to New Health Dialogue blog]
Seat belts save lives. At least conventional wisdom says so. But is this really the case?
Seat belts are useful because the reduce the chance that–given that you are in an accident–you will die or sustain a serious injury. But wearing a seat belt may give drivers an incentive to drive more recklessly since the driver may believe that accidents are not as dangerous. Thus, seat belts may increase accidents but reduce injuries when people are in accidents. The net benefit may be ambiguous.
An Economist magazine article (”A hazardous comparison“) expands on this and other safety issues.
In one experiment, a British psychologist, Ian Walker of Bath University, simply got on his bicycle and monitored the behaviour of 2,300 vehicles that overtook him. When he wore a helmet, drivers were much more likely to zoom past him with little room to spare; when he was bare-headed (and indeed when he wore a female wig) the amount of space that motorists left would increase. An experiment in Munich found that the drivers of taxicabs fitted with anti-lock braking systems were involved in no fewer accidents than those without. That is because the former used those superior brakes not to practise prudence but to drive more aggressively.
Such unintended effects are not confined to Europe. John Adams, a transport expert at University College London, has compiled data from all over the world to show that laws making drivers wear seatbelts do not make roads safer; they move deaths from inside cars to outside them because they encourage bad driving. The number of young children killed on the roads has fallen in recent years, he notes—but mainly because they are rarely allowed out alone, so today’s teenagers have less skill at navigating hazardous roads; and as a result, the number of teenagers killed in car accidents has jumped. He lauds the Dutch experiment in “naked streets” where most road signs and markings were removed to force travellers to keep their wits about them.
Joe Paduda has a great post (”Wasted Dollars“) reviewing a study by Alex Swedlow. The study focuses on waste in the health care sector with a focus on Workers Compensation. Mr. Paduda concludes the following:
There’s a lesson here for the non-workers comp world, and policy wonks in particular. It is this - providers overtreat, to the detriment of the patient and the payer. Draconian measures such as flat limits on the amount of treatment do work.
With health reform on the horizon, here’s a great example of the waste in our health care ’system’, waste that benefits the provider.
Paduda claims that Draconian measure work. They key is that policymakers/bureaucrats set these limits at an economically efficient amount. If the medical care becomes too limited (e.g.: the number of doctors visits allowed is below the optimal level for many patients) then patient care could be hurt. If the limits are too high, than there may be no cost savings.
In the California Workers Comp example, Paduda says regulators got it right.
According to Reuters (”All U.S. kids…“), the CDC’s Advisory Committee on Immunization Practices (ACIP) is recommending that all kids should receive an influenza vaccination. Previously, the CDC recommended that all children 0-6 receive a flu shot. Now, all children 18 and under should get the shot.
In addition to the direct health benefits the children will receive from a decreased likelihood of getting the flu, the probability that they will spread it to adults, teachers, other children, and senior citizens will decrease.
However, there will be costs to the flu vaccine expansion. According to the U.S. Census, there were 61.3 million children aged 5-19 in the U.S. Getting all these children vaccinated will be very costly and since the vaccines will be given in the fall, the logistics of providing 61 million additional flu shots will be difficult to manage.
Further, one of my working papers (”Adam Smith meets Jonas Salk: Estimating the Social Cost of Third-Party Influenza Vaccination Restrictions“) finds that when kids 0-18 year old must receive a flu vaccine efficiency losses could increase to as much as $560 million if insurance companies continue to prohibiting reimbursement to pediatricians for vaccinating adults.
The San Diego Union Tribune has an article (”Cross-border coverage“) profiling entreprenuer Jim Arriola and his low cost health insurance plan covering medical care in both the U.S. and Mexico.
His company, Sekure Healthcare, provides a limited-benefit insurance program through employers along with a discount health card program. Both can be used by Sekure members and family members to visit doctors and hospitals on either side of the U.S.-Mexico border.
The health plan is not as generous as typical employer-provided health insurance, but may be an attractive option for low wage workers who can not afford top-of-the-line coverage. Sekure specifically targets low wage Mexican workers in California.
While the plan certainly fills a niche, this type of cross border plan likely will not gain broad appeal. First, most people want to receive their medical care where they live. Thus, the option to have treatment in Mexico will likely only be attractive to frequent migrants or those living near the border (i.e. San Diego). Secondly, the Sekuye plan does not cover catastrophic medical costs.
“Sekure pays up to $50 for each doctor’s office visit and a maximum of $300 a year for the service. Beneficiaries can get up to $800 a day and a maximum of $3,000 a year for hospitalization. They pay out of their own pockets for any charges exceeding their benefits. “
The Sekure plan is the exact opposite of health plans advocated by Republicans. Instead of having catastrophic health insurance with a high deductible, the Sekure plan provides a minimal benefit and does not cover catastrophic costs.
Nevertheless, some insurance is better than no insurance for many low wage workers.
The Wall Street Journal has an interesting article (”Markets and Medicare“) by John Goodman, President of the National Center for Policy Analysis. The article has some innovative suggestions regarding how to improve the health care system.
Medicare should allow alternative payment mechanisms, such as compensating doctors for e-mail and telephone communication with the patient (I completely agree with this). Geisinger Health System “…offers a 90-day warranty on heart surgery, similar to the type of warranties found in consumer product markets. If the patient returns with complications in that period, Geisinger promises to attend to it without sending the patient or the insurer another bill.” While this may seem like a good idea, if someone falls sick within 90 days, it may not always be possible to attribute the complication direction to the heart surgery. It may be due other co-morbidities and how seriously the health system takes this guarantee is unknown.
Virginia Mason Medical Center in Seattle will not give patients MRIs for back pain without first seeing a physical therapist. This is entirely sensible and will greatly cut costs without affecting the quality of patient care.
It is interesting that Goodman advocates the “resticted MRI use” since the NCPA says that “The NCPA’s goal is to develop and promote private alternatives to government regulation and control, solving problems by relying on the strength of the competitive, entrepreneurial private sector.” Reducing the number of MRIs run is certainly the optimal solution from a systems point of view, but reducing MRI use smells like rationing. Physicians have no incentive to decrease the number of MRIs taken–unless the insurers refuse to pay for them–since the patients demand them and many physicians are owners of the MRI care centers to which they refer patients.
What we all must realize is that all good are rationed. They are either rationed through a price mechanism, through queues or through by insurance company or government mandates.
This week’s edition of The Economist magazine has some great articles on health care.
According to the USA Today, the influenza vaccine may receive a complete overhaul for the 2008-2009 flu season.
All three flu viruses in this year’s vaccine should be swapped for others next year because of a dramatic change in the mix of circulating flu bugs…
The decision launches a “time-critical, highly orchestrated” effort by public health agencies and vaccine makers to produce roughly 100 million doses of vaccine — a dated process that involves growing the virus in eggs, he said. “From egg to vial, it takes six to eight months,” Baylor said in a background briefing with reporters this week.
The egg-growing process is done only in the U.S. In Europe, vaccines can be produced faster since they are developed artificially in a lab.
This year’s vaccine protects against just one of three viruses that are dominating this year’s flu season, now reaching its peak. The Centers for Disease Control and Prevention said last Friday that 44 states are reporting widespread flu activity, with cases mounting in five others.
Scientists are unable to explain why all of a sudden, new flu strains have grown so much in prevalence.
Google is everywhere. CNN reports that Google is venturing into health records biz.
“Google Inc. will begin storing the medical records of a few thousand people as it tests a long-awaited health service that’s likely to raise more concerns about the volume of sensitive information entrusted to the Internet search leader.
The pilot project to be announced Thursday will involve 1,500 to 10,000 patients at the Cleveland Clinic who volunteered to an electronic transfer of their personal health records so they can be retrieved through Google’s new service, which won’t be open to the general public…
The third-party services are troublesome because they aren’t covered by the Health Insurance Portability and Accountability Act, or HIPAA, said Pam Dixon, executive director of the World Privacy Forum, which just issued a cautionary report on the topic.
Passed in 1996, HIPAA established strict standards that classify medical information as a privileged communication between a doctor and patient. Among other things, the law requires a doctor to notify a patient when subpoenaed for a medical record.
That means a patient who agrees to transfer medical records to an external health service run by Google or Microsoft could be unwittingly making it easier for the government or some other legal adversary to obtain the information, Dixon said.”
The New York Times blog BITS also has a post about Google Health as well.
There is an interesting pair of blog posts by Ezra Klein and Andrew Sullivan. Mr. Klein advocates a more centralized health care system while Mr. Sullivan is opposed to expanding the government’s role in health care.
Who do you agree with?
Michael Cannon of Cato-at-Liberty cites a study from the Congressional Budget Office (CBO) that it is difficult for centrally planned medical care to eliminate local norms.
“…the centrally budgeted VA system does not display much less geographic variation in spending than is exhibited in the unbudgeted Medicare program . . . . In addition to exhibiting geographic variation in spending, the VA system shows substantial variation in patterns of clinical practice despite the fact that VA’s management tracks providers’ compliance with national guidelines for the treatment of many medical conditions . . . . The implication is that local norms can influence practice patterns, even in a relatively centralized system that places a strong institutional emphasis on adherence to clinical guidelines for care”
Cannon also concludes that pay-for-performance mechanisms may have a similar difficulties eliminating regional variations.
“In 1988, the first year for which data are available, there were fewer than 14,000 patients waiting for a kidney transplant and about 7,000 deceased-donor kidneys. Today, the waiting list has grown more than fivefold — an increase fueled partly by higher rates of diabetes — but the number of deceased-donor kidneys has only inched up. ”
There is a serious kidney shortage in the U.S. Any economist can tell you that shortages generally occur from either a natural disaster or when the government imposes a below market price on a commodity. In this case, the government has said that one can not sell organs; thus the market price for a kidney is set to zero. Could a market for kidneys solve this problem?
The Wall Street Journal has a pair of interesting articles (”Kidney Shortage…” and “A Market for Kidneys?“) on whether or not we should have a kidney market. Julio Elias of the University of Buffalo comes out in favor while Alvin Roth of Harvard University is against. Dr. Elias makes a case based on economic theory:
“The current system of live organ transplants resembles an autarkic economy in which patients in need of an organ transplant are constrained to the organs available in the pool of friends and relatives. The kidney exchange system developed by Al and others is a barter system, and clearly will provide an improvement over the current system.
But a general conclusion of economics is that barter is an inferior system when compared to a money system, since barter requires the coincidence of wants. With the use of computers, and a national registry, multilateral barter is a good possibility, but still less efficient than using general purchasing power; i.e., a market. The main disadvantages of the kidney exchange system are the limitations that only kidneys from relatives and friends can be used and that the exchange must happen at the same time. A market-based exchange does not have such serious limitations.”
Dr. Roth believes that creating a market is politically infeasible and socially repugnant. Although he does not reject the merits of an organ market, he does say that more practical steps–such as an organ exchange or making all individuals organ donors upon death unless they explicitly opt out–will currently be more politically feasible.
“There would be more live-donor transplants if everyone who wanted to donate a kidney to someone could do so, but a healthy person’s kidney is often incompatible with his or her intended donor. So, one way economists have helped is in helping organize kidney exchanges, which allow incompatible patient-donor pairs to exchange with other such pairs. “
What do you think?
According to the Daily Mail (…obesity epidemic…) the NHS could give “vouchers to the overweight to spend on healthy food in supermarkets” or cash prizes to those who manage to lose weight. The UK could also mandate cooking classes in school and more time for physical education classes.
The UK report on obesity states: “We need to rework the incentives for individuals and public bodies to encourage actions now, thereby avoiding much larger costs in later years.”
But will decreasing obesity save the government money? Not according to a recent paper in the PLoS Medicine titled “Lifetime Medical Costs of Obesity: Prevention No Cure for Increasing Health Expenditure.” The paper finds that healthy people have more lifetime medical costs that either obese individuals or smokers. How can this be the case? It is true, that each year an obese individual lives they will incur more medical costs than a healthy person. In particular, spending on heart disease, diabetes, and musculoskeletal diseases. Since a healthy person lives longer, however, the healthy person has more years of medical expenditures which will accumulate compared to an obese individual. Similarly, smokers have higher medical costs per year but since they have a shorter life expectancy, smokers actually incur fewer medical costs over their lifetime than healthy individuals.
It seems that giving prizes to obese individuals for losing weight will not only be costly in terms of the tax revenue needed to fund the project, but will also increase medical expenditures if people do in fact lose weight. The Healthcare Economist is proposing a revolutionary concept: let each individual choose their own weight make their own lifestyle choices without any government interference.
There is a law which states that drug companies must sell drugs to Medicaid at their the lowest price. It turns out the Merck was selling drugs to hospitals at a steeper discount than what they were giving to Medicaid. Merck will pay $399 million for overcharging in Philadelphia and $250 million for overcharging in Louisiana.
According to the New York Times (”$671 million“):
“Merck…was hiding the steep discounts it gave to hospitals by reporting higher prices to the government, prosecutors said.
From 1997 to 2001, Merck also gave money and perks to doctors and other health care professionals to entice them to prescribe Merck drugs, a practice the government called excessive.“
Merrill Goozner has an interesting post (”Unfair and Unbalanced Wonkery on Mandates“) arguing that insurance mandates aren’t good policy (I agree with him on this).
For the record: I’m opposed to mandates for two reasons. First and foremost, they’re bad politics. Americans don’t like to be told to do anything. They especially don’t like unfunded mandates.
That leads to point two. Without sufficient taxes on businesses that don’t provide insurance to their employees and/or significant savings from health care cost control (not likely given the opposition of insurance companies, drug companies, hospitals, doctors, and other providers in the system), mandates will result in inadequate plans for the uninsured — catastrophic plans that still leave the newly insured at the emergency room door for basic care and without preventive services. Higher taxes are a prescription for political failure. Lousy plans maintain the status quo in public health. Some choice.
The rest of the Goozner post argues that a single payer system is not socialized medicine. While it is true that physicians are not directly employed by the government in a single payer system, since the government is paying all physicians salaries–especially if the physician has not outside options to receive payment from another source–I would say that a single payer system is de facto socialized medicine.
According to the Telegraph newspaper (”Don’t treat the old…“), “Smokers, heavy drinkers, the obese and the elderly should be barred from receiving some operations, according to doctors, with most saying the health service cannot afford to provide free care to everyone.”
Should you be denied coverage because of lifestyle choices or because you are ‘too old?’ From a strictly medical point of view, there are likely some individuals who’s lifestyles will create a high risk of complications during surgeries. For some elderly, surgical procedures may offer a slim hope at the prospect of a better life, but at a cost of a significant risk of making the patient worse off. There should be little debate that when a doctor believes that an operation is not necessary or would create too high a risk of complications, then these patients should not be offered free care.
However, the government (i.e., NHS and Medicare/Medicaid) or third party (i.e., private insurance companies) have an incentive to limit the number of people who are eligible for surgeries to decrease cost. In a general equilibrium, free-market framework, if an insurance company would refuse treatment for many individuals, than these individuals can switch insurance companies and the less generous firms will lose market share. Health insurance, however, is not a perfect market and insurance companies have a financial incentive drop individuals with a poor unobserved health statuses.
When the government is running a health care system, then there is no market mechanism (unless there is an outside option of private insurance) and thus these entities will have an incentive to deny coverage for many operations. Health care is expensive and it costs a lot of money to run a single payer system. In fact, the Telegraph reports that “[a]mong the survey of 870 family and hospital doctors, almost 60 per cent said the NHS could not provide full healthcare to everyone and that some individuals should pay for services.”
Should a 95 year old receive a hip transplant even when their probability of living 5 more years is low? Should an alcoholic be refused a liver transplant if they refused to stop drinking?
These are important philosophical questions for a society to determine when insurance is provided publicly. Despite the many flaws of a free-market system where medical care is purchased through private insurance or out-of-pocket payments, these issues are attenuated in a free-market setting. Individuals would only pay for an operation if their benefit is higher than the cost and there would be no liability for a government or private payer entity. Further, in a free-market without insurance, there is a less of a moral hazard problem since individuals may engage in healthier behaviors in order to avoid paying for expensive operations. It may be the case, however, that moral hazard has a small impact because individuals always have an incentive to make effort to stay healthy.
According to the San Diego Union Tribune, yesterday PacifiCare was fined $3.5 million and the California Department of Managed Health Care is seeking up to $1.3 billion in additional penalties for “130,000 alleged claims-processing violations…in California between July 1, 2005, and May 31, 2007.” PacifiCare is the second largest HMO in San Diego and the fourth largest health insurer in California.
These violations have prompted California Insurance Commissioner Steve Poizner begin an audit of the eight largest California health insurers to determine whether or not these companies have engaged in similar billing practice.
Joe Paduda of Managed Care Matters argues that the ruling is another piece of evidence which favors a single-payer system. Mr. Paduda states:
For those (including me) forever excoriating health systems and hospitals for their outrageous error rates, the debacle at Pacificare, the recently-acquired division of United Healthcare (one of my past employers) make the delivery sector look like a paragon of performance. I’m not overly surprised, as mergers involve systems conversions, the amalgamation of provider networks and contracts, and the shifting of work around to different call centers and processing locations. Duplicate staff positions are identified and people laid off, and when they walk out the door so does the expertise and understanding that enabled the operation to run smoothly.
The question remains, would a single-payer system perform better? The government is not known as the paragon of efficiency. With a single payer system, likely one of two things will happen:
A single payer system may lead to improved claims processing. However, for anyone to be convinced that a single payer system is the way to go, one must not only show that the present system is flawed, but that a single payer system is a significant improvement.
The Sacramento Business Journal has an interesting article (”Better communication…“) on Kaiser Permanente’s online system for patients called “KP HealthConnect.” The system allows patients to schedule appointments, refill prescriptions, view lab results and email doctors.
In President Bush’s 2008 State of the Union address, health care issues were mentioned, but did not play a prominent role. Whitehouse.gov has the full State of the Union transcript.
State of the Union: Summary of Healthcare Issues Addressed
Bush reiterated his earlier reform proposals to end the tax deductibility of employer-provided health insurance and to expand health savings account yet no.
“To build a future of quality health care, we must trust patients and doctors to make medical decisions and empower them with better information and better options. We share a common goal: making health care more affordable and accessible for all Americans. (Applause.) The best way to achieve that goal is by expanding consumer choice, not government control. (Applause.) So I have proposed ending the bias in the tax code against those who do not get their health insurance through their employer. This one reform would put private coverage within reach for millions, and I call on the Congress to pass it this year. (Applause.)
The Congress must also expand health savings accounts, create Association Health Plans for small businesses, promote health information technology, and confront the epidemic of junk medical lawsuits. (Applause.) With all these steps, we will help ensure that decisions about your medical care are made in the privacy of your doctor’s office — not in the halls of Congress. (Applause.) ”
Bush also discussed the need to increase funding for basic research:
“On matters of life and science, we must trust in the innovative spirit of medical researchers and empower them to discover new treatments while respecting moral boundaries. In November, we witnessed a landmark achievement when scientists discovered a way to reprogram adult skin cells to act like embryonic stem cells. This breakthrough has the potential to move us beyond the divisive debates of the past by extending the frontiers of medicine without the destruction of human life. (Applause.)
So we’re expanding funding for this type of ethical medical research. And as we explore promising avenues of research, we must also ensure that all life is treated with the dignity it deserves. And so I call on Congress to pass legislation that bans unethical practices such as the buying, selling, patenting, or cloning of human life. (Applause.)”
President Bush also perceptively mentioned that entitlement such as Social Security, Medicare and Medicaid will eat up more and more of the federal budget as time passes and will necessitate large tax increases, benefit cuts, or an increase in the deficit, yet no new concrete solutions were proposed in the speech.
The final health care issue mentioned was President Bush’s desire to “double our initial commitment to fighting HIV/AIDS by approving an additional $30 billion over the next five years.”
Healthcare Economist commentary
The Healthcare Policy and Marketplace Review notes that none of Bush’s 2007 healthcare reform proposals (e.g.: standard tax deduction for health insurance, expand Health Savings Accounts, medical liability reform) were enacted so why would this year be any different? It is likely that none of the 2008 proposals will be enacted as well. With a new president set to take office in less than a year, there is little chance of wholesale reform.
I do agree that employer-provided and individually purchased insurance should be treated similarly, but offering tax deductions for both is not the answer. The tax deduction is more beneficial for individuals with a higher marginal tax rate (the rich) and thus the tax deduction will most those who need it least. Instead, we should end the tax deductibility of health insurance completely. A flat rate subsidy or voucher for every individual (or possibly a risk-adjusted subsidy based on the indivdidual’s age and sex) would make more sense.
Conceptually, I am in favor of health savings accounts, but not as they currently are used. HSA are simply a tax deduction mechanism for those with sufficient wealth and liquidity. Poor individuals who need more liquid asset will not be able to take advantage of the HSA. Singapore has a mandatory HSA in which funds are automatically are deducted from one’s checking account. I am generally not in favor of mandatory saving, but this Singaporean example is intriguing and fairly egalitarian.
I do support President Bush’s proposal for more funds for basic science research and HIV/AIDS treatment.
It will be Barak Obama, Hilary Clinton, John McCain, Mitt Romney or some other presidential candidate who will have the opportunity to institute significant health care reform because this will not happen during the final year of the Bush presidency.
Reuters reports (”Too few…“) on the problem that U.S. adults not receiving necessary vaccines.
“Only 2 percent of U.S. adults last year got a shot that can protect them from painful bouts of shingles, health officials said on Wednesday in a study that shows what they call unacceptably low rates of adult vaccination against a range of diseases.
Adults also failed to get vaccines that can protect them against tetanus, whooping cough and even influenza — despite years of campaigning, the U.S. Centers for Disease Control and Prevention [CDC] found.”
There are a variety of vaccines and different vaccines only apply to certain demographic groups based on their age, sex and risk factors. Some risk factors are obvious (e.g.: being HIV positive, having sex with prostitutes) but others are more mundate (e.g.: working in the healthcare or public safety sectors, being a first-year college student, traveling abroad).
Here at the Healthcare Economist, I don’t just point out potential problems, I offer solutions:
If you do not know which vaccines you need to get, go to the CDC Immunization website and TAKE THIS QUIZ. Childhood immunization schedules are also available.
Want some more information on the presidential candidates views on healthcare reform? The Healthcare 08 website has an interesting “PoliGraph” showing where the candidates stand. Candidates are characterized according how government driven and how important health care issues are. The graphs include issues such as: overall health care reform, drug prices, the uninsured, and stem cell research.
The graphs are very well done and the information is very accessible.
Richard Posner and Gary Becker, two preeminent economists, discuss some of the presidential candidate’s plans for healthcare reform.
Posner laments that the U.S. spends 16% of GDP on healthcare, but only has 37th best healthcare system according to the World Health Organization. What is to be done? Most candidates promise to reduce costs and increase health insurance coverage. But expanding insurance coverage will likely increase cost.
Posner derides some of the other reform ideas:
“Some of the proposals for reducing aggregate costs are either fluff, like reining in jury awards in medical malpractice cases (those awards are a tiny fraction of total health costs, and already are being reined in by judges and by tort-reform measures adopted by state legislatures), or measures that the market is in process of implementing, such as the digitization of medical records. Other economizing proposals have hidden negative implications for quality–such as placing price controls on prescription drugs, reducing the protection that the patent laws provide against competition by generic (nonpatented) substitutes, and permitting the reimportation of drugs from countries that have price controls on drugs.”
What is the solution?
“The way to economize on expenditures on health care, though it is utterly infeasible politically, would be to eliminate the tax subsidies for health insurance and health care and institute a means test for Medicare, and at the same time to limit medical services. Then both the demand for and the supply of those services would be reduced, and the percentage of GNP that goes for health care would drop. But the principal result might be to reallocate consumption spending to goods and services that most people value less at the margin than they do health care. Moreover, there is an economic argument for some level of tax subsidies for health insurance premiums or health care. Medical care increases human capital, and is thus an investment, and investment expenditures need not be (probably should not be) taxed as long as the revenues generated by them are.”
In Becker’s post, he supports four main health care reform ideas:
A Healthy Blog has an interesting post (”Stories of Harm“) giving patient video testimonies regarding their experience with medical errors and how it has impacted their life.
The Consumer Health Quality Council is a group of Massachusetts patients who have been harmed by medical errors and they are calling for reform within the health care system.
Their stories are truly moving…and sad. It’s sad that, according to this website, medical errors are the fifth leading cause of death in the U.S.
Many of the Democratic candidates support having employers provide insurance for their employees with the threat of a fine or tax if an employer decides not to comply. This of course will increase the cost of an employee for firms. If employees truly value the health insurance, then the cost of insurance can be passed on to the employee through lower wages.
This cannot happen, however, if you are a low-wage worker whose wage is at or near the minimum wage. This is, of course, because employers can not pay wages below the minimum. Thus, a “Pay or Play” mandate may reduce employment for the lowest skilled workers. A paper by Baicker and Levy examines this issue.
The authors find the following:
“The authors calculate the average cost of a health insurance plan to be about $9,000 for family coverage during their sample period, or $3.66 per hour for a full-time worker. Assuming that a mandate required employers to provide coverage similar to the average plan and to pay 80 percent of premiums, wages would need to fall by $3 per hour to fully offset the cost of the mandate.
The authors estimate that one-third of all uninsured workers, or 5.5 million U.S. private sector workers, have earnings within $3 of the minimum wage.
…the authors estimate that the implied increase in compensation resulting from the mandate would cause 224,000 workers to lose their jobs. The affected workers would be disproportionately low education, minority, and female.”
From the NBER Fall 2007 Bulletin on Aging and Health.
Barack Obama wins Iowa and is predicted to win New Hampshire according to Gallup polls. Then Hillary Clinton wins New Hampshire. Why were Gallup poll predictions wrong?
The Statistical Modeling blog tries to make sense of this in their post “What was going on with the New Hampshire polls?“ The post gives three reasons why the Gallup polls could have been wrong:
So you’re a Republican and you don’t know who to vote for. Which of the Republican candidates has the best plan for health care reform? This is what I will discuss today.
If you are a Democrat, please read my “Guide to the Democratic Candidates” yesterday.
Similarities
Almost all the Republican candidate are in agreement on the following issues:
Differences:
A chart will be helpful here (ordered from most to least votes in Iowa caucus).
| Huckabee | Romney | Thompson | McCain | Paul | Giuliani | |
| Insurance mandate? | N | N | N | N | N | N |
| Expand SCHIP? | N | N | N | ? | N | N |
| Guaranteed issue? | N | N | N | N | N | N |
| Community Rating? | N | N | N | N | N | N |
| Insurance subsidies? | Y | Y | N | Y | N | Y |
| End tax deductability of employer-provided ins? | N | N | N | N | N | N |
| Begin tax deductability of individual ins? | Y | Y | N | Y | Y | Y |
| Regional Purchasing | N | N | N | N | N | N |
| Allow drug imports? | ? | ? | N | Y | Y | N |
| Expand HSA? | Y | N | N | Y | Y | Y |
The Republican candidates seem much more satisfied with the status quo than the Democrats. Philosophically, Republicans want to put more health care decisions into the hands of consumers. Thus, most candidates support making individually-purchased health insurance tax deductible with the exception of Fred Thompson. Rudy Giuliani would allow a standard tax deduction of $15,000 for families and $7,500 for individuals.
Huckabee, Romney, McCain and Giuliani would all give poor individuals subsidies to purchase health insurance, but none claim that they will end Medicaid. Likely, they would offer low income families the option of purchasing health insurance with a subsidy or possibly the ability to opt out of Medicaid. Thompson and Paul do not support these subsidies.
One would think that free-market Republicans would support the right to import drugs, but only McCain and Paul believed this was a good idea.
Health savings accounts (HSAs) were very popular as well. Many candidates supported allowing the creation of an HSA without having a high-deductible health plan (HDHP). Romney and Thompson did not explicitly support this idea, but they were not against it either.
Healthcare Economist’s Take
Most Republican candidates believe that less–not more–government involvement is the best way to cure what ails the healthcare system. While I am sympathetic to this line of thought, pure political ideology will not improve the healthcare system.
Huckabee calls for a “complete overhaul” of the health care system but only does not really offer concrete solutions. His plan to increase HSAs is widely shared by almost all of the candidates. I am not sure why HSAs are a good idea. They limit the liquidity of consumers income. This means that only individuals with large savings (i.e.: the rich) will be able to take advantage of HSAs while the liquidity constrained poor will need to have their money available for food, utilities, gas clothes and shelter and will not be able to benefit from HSAs.
Despite significant health care reforms in Massachusetts, Romney’s national health care reform plans are meager: make health care expenses and insurance premiums–including nongroup policies–tax deductible.
Thompson’s health care plan is basically to be content with the status quo.
McCain gives the most detailed healthcare plan. Like Barak Obama, he wants to create national standards for measuring and recording treatments and outcomes. He also supports clinics in retail outlets (e.g.: Minute Clinics) and the expansion of the role of nurse practitioners and physician assistants, and a $2,500 tax credit ($5,000 for families) to increase incentives for insurance coverage.
Ron Paul is the most radical candidate. He wants reduce the role insurers–especially HMOs—play in the financing of healthcare. He wants patients to be responsible for paying the first dollar of health care. Despite his qualifications as a physician, Paul does not offer very creative solutions to the healthcare problem. While he is a libertarian, he does not propose any limits on Medicare or Medicaid and in fact wants to expand government coverage to include alternative medicines.
While McCain supports a tax credit, Giuliani supports a tax deduction of $15,000 Family, $7500 health insurance deduction. This helps those with a higher marginal tax rate more (i.e.: the rich) and the poorest individuals who don’t pay tax will not even benefit from this legislation. Giuliani does advocate a Health Insurance Credit for the poor as well and poor individuals could use these funds–as well as funds from Medicaid or their employer–to purchase private health insurance. Any social program that gives money to the poor and then tells them how to spend it–on this case on health care–must be compared against a simple government cash transfer program.
The Healthcare Economist Democratic Pick: McCAIN
While little separates the Republican candidates in terms of their view on health care reform, I would support John McCain. I am strongly in favor of importing pharmaceuticals from other countries and innovative medical delivery systems such as the Minute Clinics. McCain supports both of these initiatives. Also, McCain has a $2500 tax credit ($5000 for families) for all Americans and this will help to eliminate the bias toward employer-sponsored health insurance.
Rudy Giuliani has a very similar health care reform proposal as McCain, but does not support the importation of pharmaceuticals from developed countries. Further, Giuliani’s tax deduction is regressive compared to the McCain tax credit which is a more proportional subsidy for everyone (although Giuliani does offer a Health Insurance Credit for the poor). I am partial to Ron Paul’s libertarian leanings on many issues, but trying to eliminate third party payers is not a feasible solution to the healthcare crisis, especially when catastrophic illnesses are so expensive.
Candidates’ Statement on the Health Care Issue
So you’re a Democrat and you don’t know who to vote for. Which of the Democratic candidates has the best plan for health care reform? This is what I will discuss today.
If you are a Republican, please read my “Guide to the Republican Candidates” tomorrow.
Similarities
All of the Democratic candidates support the following actions:
Differences
A chart may be helpful here:
| Obama | Edwards | Clinton | |
| Insurance mandate? | N | Y | Y |
| Expand SCHIP? | Y | Y | Y |
| Guaranteed issue? | Y | Y | Y |
| Community Rating? | ? | Y | ? |
| Insurance subsidies? | Y | Y | Y |
| End tax deductibility of employer-provided ins? | N | N | Y |
| Begin tax deductibility of individual ins? | N | N | N |
| Regional Purchasing | N | Y | N |
| Allow drug imports? | Y | ? | ? |
| Expand HSA? | N | N | N |
Healthcare Economist’s Take
Electing a Democratic president will likely move us closer towards a universal health system. Subsidizing health care will help poor individuals afford the care they need. I like the egalitarian approach of Democrats but this type of system will be expensive.
Many of the candidates propose that the federal government will reimburse employer health plans for a portion of the catastrophic costs they incur above a threshold. This may decrease insurance companies incentive to provide inexpensive preventive care. For instance, insurance companies have a large incentive to provide beta blockers to reduce heart attacks, but if the federal government will pay for most hospitalizations, than the incentive to provide this care diminishes.
While there is no one optimal standard for insurance benefits, standardizing insurance benefits can help eliminate some of the patient-third payer confusion of what will actually be reimbursed. It will also help stop the insurance company practice of denying claims to increase profits.
The one drawback to this system is that it is expensive. Taxes will have to be raised. Although the candidates talk generally about preventive care and EMR, without having individuals bear a significant share of the marginal costs of medical care, medical spending will like increase significantly.
The Healthcare Economist Democratic Pick: OBAMA
If you are a Democrat and are voting solely based on a health care reform agenda, I endorse Obama. Obama does not mandate insurance coverage. Instead, he is trying to make care more affordable without telling individuals how to spend their money. Further, I whole-heartedly agree that patients should be able to buy prescription drugs from developed countries. Obama’s goal is to expand coverage which still allowing significant choice. The Edwards plan is one step away from nationalized health care.
Obama also has an explicit proposal to create and fund an “independent institute to guide reviews and research on comparative effectiveness.” Although the government may not be the best mechanism for this, disseminating medical ‘best practice’ methods is vital to improving medical quality.
The Obama plan will be expensive and either taxes will have to be increased, or spending must be cut elsewhere. Still, Obama is the best Democratic option.
Candidates’ Statement on the Health Care Issue
Tomorrow: Guide to the Republican Candidates
The USA Today reports on your government in action (”Subsidies…“):
Flying round-trip from Lewistown, Mont., to Billings — also a two-hour-drive — costs $88 as well on Big Sky. The government cost: $1,343 per passenger. Just two people a day took the Lewistown-to-Billings flights on average in 2006, according to the DOT.
According to the N.Y. Times (”…Benefit Cut at 65 in Retiree Plans“) in 2001it is estimated that one-third of large employers and fewer than one-tenth of small employers offered health benefits to retirees. These numbers may trend towards zero in the near future after an Equal Employment Opportunity Commission (EEOC) ruling.
NPR’s Marketplace reports (”Employers let off one health-care hook“) the EEOC has ruled “that companies can cut their retirees’ health-care benefits once they turn 65.” This will lead to more government provided health care. Is this a good thing?
Businesses will certainly benefit from not having to be in the business of planning for the health insurance of seniors. According to the N.Y. Times, Dianna B. Johnston, a lawyer for the commission, said many employers and labor unions had told it that “if they had to provide identical benefits for retirees under 65 and over 65, they would just drop retiree health benefits altogether for both groups.?
Further, a paper by Gopi Shah Goda, John B. Shoven, Sita Nataraj Slavov (reviewed on 10 Oct 07) claims that having Medicare as a Secondary Payer (MSP) creates an implicit tax for elderly workers. The authors find that the tax is 15-20 percent at age 65 and increases to 45-70 percent by age 80. While the authors claims are based on how MSP effects seniors’ incentives to work, it does not comment on whether or not implicit contracts guaranteeing retirees right to private insurance should be abolished or not.
In essence, this ruling is a transfer from retirees to businesses. Retirees who believed they would receive private health insurance from their employer now must rely on Medicare or pay for private insurance in the individual market. Businesses benefit from being able to eliminate costs from insuring retirees.
This raises the larger question of who should be paying for health insurance. The government could do it, but this may lead to a monopolistic system with little choice and a potential for corruption. Individuals could buy their own insurance, but without a mechanism to pool risk, sick individuals will have to pay significantly higher premiums than healthy individuals. Insurance is supposed to insulate individuals from income shocks due to changes in their health status and an individual market will not be able to accomplish this goal. A natural risk pooling institution is the employer, but employers do not want to be in the business of planning their employees (large) health insurance choices. Who should pay for health care is at the crux of the health care debate and needs to be resolved before policy reforms are implemented.
