Why insurance is essential

This post gets to the heart of the reason why I consider the "insurance" piece of health insurance to be the less important part.  Being able to get favorable rates at the time of a medical emergency is far more important.  Consider: 

Lab testing is a vital part of modern healthcare, and can be a valuable tool in helping to diagnose many conditions and illnesses. But they can also be costly, especially if patients don’t pay attention to where their tests are being done. This can even be a problem for those with ‘comprehensive’ insurance, such as Mr. Marcovitz, when their insurer decides after the test is performed that they won’t cover a certain procedure. His story turned out OK, but most self-pay patients would likely have been stuck with a $2,000 bill for a test that they should only have paid $375.

It is fine to argue over whether statins should be covered by insurance, as a patient can actually get price quotes.  But it is less obvious that this is viable after being shot.   It is this emergency care piece of medical care that makes it impossible for a patient to comparison shop prices.  Heck, our ambulance system is completely set up for getting people to care fast and a seriously injured patient is simply not going to be able to bargain.  Imagine the "pay X now or go to hospital Y and pay Z, but on the way you will have irreversible heart damage due to a delay in treatment for your myocardial infarct".

Since the bargaining power in US medicine is entirely with insurers (private or government) this is actually a rather big deal. 

h/t The Incidental Economist

Health Care and Complexity

Aaron Carroll:

That said, if you want to have a discussion on the merits of making the American Health Care system look like Singapore’s, I’m on board. Let’s do it. But what I’ll fight against – and call out – are the people who do that with lots of “buts”. You want Singapore, but you don’t want the mandated savings accounts. You want Singapore, but you don’t like government involved in purchasing decisions. You want Singapore, but you oppose centralized budgets. You want Singapore, but you oppose government subsidies.

This was partially in response to Tyler Cowen:

Now enter Aaron Carroll, who tries to argue Singapore is moving in an ACA-like direction.  His post has been cited numerous times, but it is not insightful nor does it show much curiosity about the new changes in Singapore.  It is mostly a polemic against Republicans.  In any case the new Singaporean emphasis on taking care of the elderly isn’t well understood by a comparison with ACA.

 In some ways I think they are both making very good points, albeit very different ones.  In Cowen's defense, health care has become so tightly bound to partisan politics in the United States that a strong pro-ACA line is going to look like an attack on Republicans, even if it is modeled on a Republican plan.  That's rather unfortunate but true. 

On the other hand, one of the ways to argue for a system is to find historical (or, even better, contemporary) examples of a particular approach working.  Innovation is likely to be tried by smaller groups first.  So Democracy works out so-so in Athens and people begin to tweak it.  Eventually you get the UK model and the US model of democracy, neither of which look like the original.

The problem with this approach is that it requires one to be extremely clear about what the effects of these tweaks will be.  The United States appears to be in an equilibrium where, at a population level, it costs a lot and delivers middle of the road outcomes.  Moving further into that space (and away from programs that are cheaper and deliver better results) requires a very clear argument for why we think there is a local (or perhaps even the global) maxima out there. 

So the problem with Singapore is that there seems to be real disagreement over whether specific pieces are essential or not.  You also have a very different economy -- only 5 million people with an unemployment rate running in the 2-3% range.  While they have no minimum wage, the government tends to be the largest shareholder in Singapore companies and thus excessive wage inequality can be handled at the ballot box.  These design features can make a mandated savings program work really well.  But we also have what looks a lot like a command economy (just one that is small enough and distributes decision-making enough that they are not overwhelmed by complexity).  In any case, much of the US problems would be well handled by a 2% unemployment rate where people would be able to reliably save against disaster and have a decent chance to get a new job (and notice that Singapore is a single city, so there are no relocation frictions if you lose your job in a part of it with few opportunities -- you just commute longer as a result). 

So the problem is trying to reduce the number of moving parts.  I suspect that, despite its huge flaws, this is why the Canadian system keeps coming up.  It is based in a nearby country with a similar type of economy, lots of immigrants, lots of regionalism, and delivers equivalent outcomes (overall) for less overall cost.  It also encourages economic risk taking by making the risk of being uninsured negligible which can also be a benefit. 

But trying to import external health care systems is tough -- they are complex and have lots of points where it is unclear if the piece is essential or merely nice to have. 

A couple more thoughts on Oregon

Aaron Carroll (writing for the Incidental Economist) points out one interesting result of the new study:

Not too long ago, ACA opponents were claiming that Medicaid was bad for health. Some even claimed it killed people. So I was eager to see if an RCT would find that. The initial results were positive and statistically significant.

All by itself this finding is a worthwhile addition to the discussion; the meme that Medicaid coverage could lead to worse health outcomes was always a bit tricky to understand.  Trying to illicit a causal mechanism where Medicaid was worse for health but private insurance/Medicare were not that led naturally to the policy of "end Medicaid" was always a bit dicey.  If it was malice on the part of medical doctors due to low reimbursement rates then that rather changes the discussion in important ways. 

So I think we should take this argument by Megan McArdle with a great deal of care:

And yet, we did find a significant improvement in catastrophic medical bills, which coincidentally also affect about 5% of the control group.  Yet the folks saying Oregon's sample of diabetics is too small to tell us anything do not think it is too small to tell us anything about catastrophic medical bills.

I think that there are two points here.  One, the point estimates of the changes for chronic medical conditions are well within the levels of clinical significance.  So it is odd to suddenly interpret the data like an extreme frequentist and claim that the only interpretation is "no effect". 

But the other piece that is more important is that this is actually a good result.  If we take Megan's 5% rate, that would mean that 5% of poor Americans have a catastrophic medical bill within a two year period.  How can trying to solve that problem not be a major priority?  Isn't this great evidence that (given how expensive medicine has gotten) that this was a massively successful intervention?

I'd have more sympathy for the situation if we were making hard decisions to bring down costs.  But that isn't a major priority right now.  Medicaid is a very cost effective way to deliver care in a country where care is very pricey.  Why isn't this a major and positive result? 

Oregon and Medicaid

The new Oregon Medicaid study is coming out at a very bad time for me to comment.  But I want to direct you to the Incidental Economist which is doing a banner job of clarifying why it was hard to get good evidence directly on health outcomes from the study.  Further comments are here. 

One thing to note on health outcomes (poached from the comments at TIE) is:

In the case of total cholesterol the rate was reduced by 17% (from 14.1% to 11.7%). If that kind of drop is not detectable by the study then I think it is a problem.

Or this one:

 HgbA1C drops from 5.1% to 4.2%.

I think that this is too harsh, but it does point out that many of the changes were clinically significant but that the study (for a lot of reasons due to enrollment and short follow-up) is not really able to give precise estimates.   Remember, only 25% of the people offered Medicaid took it, so the adherence rate is a lot lower than what we normally think of in an RCT and so the intention to treat estimate is a poor measure of the associations among those who enrolled. 

Kevin Drum discusses this more here. Pay special attention to the PDF at the bottom of the post.

Health Insurance Question

Austin Frakt on John Goodman's proposals in Priceless: 

Anyway, the main rule John doesn’t like is community rating. He explains the problems with community rating, leading to a seeming take-down of risk adjustment. One problem with risk adjustment is that no methods predict costs all that well. Of course, some of health care, probably most of it, is unpredictable, the very part John thinks we should insure against.

John’s proposed solution to risk adjustment is that, upon switching plans, an individual’s “original health plan would pay the extra premium being charged by the new health plan, reflecting the deterioration in health condition.” There are two things about this I do not understand. First, how would this extra premium be calculated in a way that is different from risk adjustment payments? If we knew a better way, we’d have better risk adjustment now.*

Second, this idea seems no different than risk adjustment by another name. Think about it from the new plan’s point of view. Would the plan manager act any differently if the payment is called a “change of health status offset” and paid by the original insurer or a “risk adjustment payment” and paid via a market administrator of some sort (funded, for example, by assessments on low-risk bearing plans)? A dollar is a dollar. The same limitations of risk adjustment apply, don’t they?*
 

I see two issues here, both brought up in the comments.   The first is that there is a huge issue with information here.  Sorting out what the "lump sum payment" would be from the first plan to the second plan is a daunting task.

The other is the assumption that market players are immortal.  What happens if a company invests in high risk assets with their reserves?  Or if a company goes bankrupt?  How does the consumer get to be reimbursed for the increase in premium now that the original company has no assets? 

This is unlike a regular insurance company, because if a regular insurance company has to stop covering thousands of customers for fire, they do not incur instant liabilities.  Nor does the underlying risk of fire make it harder and harder to insure a house over time (or at least this doesn't change as briskly as health between 20 and 50).

The closest analogy is pension funds, but notice the huge problems we are having with defined benefit pension plans.  Notice how much discussion there is about breaking pension plan contracts due to bankruptcy; airline pilots seem to be the latest example.

Now consider the amount of personal risk such a system would create.  At 18 you buy insurance and then hope that it lasts until you are 65 (if we keep medicare) or perhaps 80 or 90 if we don't.  Even the 18 to 65 perod is 47 years.  How many top companies of 47 years ago are healthy today? 

So what is the solution to this risk and information problem?  Well, with pensions we have government backing.  That helps.  But at what point does regulating the market and creating an interaction system between insurers reduce efficiency to the point where competition isn't going to improve gains?  And recall, the real way to make money in this market is to be able to forecast risk (over 47 years) better than your competitors.  But if you underestimate risk and mis-price your plans, you can't reduce services or customers will leave and bankrupt you instantly.

Isn't this just begging for an endless cycle of bailouts?

Why is investment in human capital out of favor?

David Brooks:

The final thing the comment suggests is that Romney knows nothing about ambition and motivation. The formula he sketches is this: People who are forced to make it on their own have drive. People who receive benefits have dependency.

But, of course, no middle-class parent acts as if this is true. Middle-class parents don’t deprive their children of benefits so they can learn to struggle on their own. They shower benefits on their children to give them more opportunities — so they can play travel sports, go on foreign trips and develop more skills.

People are motivated when they feel competent. They are motivated when they have more opportunities. Ambition is fired by possibility, not by deprivation, as a tour through the world’s poorest regions makes clear.

 

I got this quote via Aaron Carroll.  One thing that seems to have really changed in the public mind over the past 5 years is the simple relationship between investment in human capital and improved outcomes.  Putting aside the Randian fantasy of super-men who can do it all on their own, all of us are dependent on others to a greater or lesser extent.  Hard work may well make opportunity into success but all of the hard work in the world doesn't help in the absence of opportunity.  Just ask any coal miner or subsistence farmer . . . 

Government Health Care

Aaron Caroll:

There are plenty of things that government does poorly. Or, at least you can make that argument, and find some support for it out there. For instance, many people believe that government does a terrible job at sparking innovation. I could imagine a debate there. Some think that government does a bad job at providing choice. That’s entirely defensible. Government run systems also allow less room for profit, which can drive out entrepreneurs. Also arguable.

But what government systems do well is hold down costs. They use central planning. They use their large market power to negotiate for reduced reimbursement (see Part 2). They buy drugs cheaper. They eliminate profit and overhead.
 

 In a lot of ways this still understates the role of government in health care.  The regulatory rules about health care are aslo responsible for increasing prices as well and have some definite effects on innovation.  Now I happen to think that some of the rules are good (e.g. the FDA) and some of these rules are bonkers (e.g. limits on number of new physicians via residency slots).  But there is a point where you have to decide how you want a market to be run.  Designing it so that it regulates things that help interest groups (i.e. keeping physician numbers down) but not other things (i.e. reducing costs by using market power) is very much the definition of regulatory capture.

I am quite willing to have a discussion about free market health care.  The first barrier to a real free market system is how we deal with public health.  After all, it took government intervention to get sewers and outhouses to come into common use in Europe.  Just look at the complexity of the modern sanitation system in France.  There is a conflict between the freedom to dump waste on the streets and the need to protect the public from fecal borne disease.  Similar arguments can be made with the need to try and keep antibiotics effective. 

A system that keeps all of the regulatory barriers to entry but shifts costs to the consumer is a very partial form of opening an industry to the free market. 

AHRQ Questions

The Incidental Economist is writing about a House Bill to remove AHRQ as an agency and to remove economic research from the National Institutes of Health. 
I am of decidedly mixed feelings. I can definitely see how the focus in the NIH should be on the science. Single, focused mandates can improve the ability of an agency to perform a critical task.

But that, if anything, is why AHRQ is critical. If we want to remove economic research from the NIH (to improve focus and metrics) then it would make a second agency, with the appropriate mandate, even more important. This is very similar to the FDA, which focuses on safety, needing a partner organization that is considering cost.

So that rather inclines me towards the view that I like the improved NIH focus but see pairing it with the elimination of AHRQ as being a very questionable decision.

NOTE: the preceding was entirely personal opinion. It does not represent any institution that I have been affiliated with or will be affiliated with. I have received funding from AHRQ.

Today's required reading

On this blog, we have been talking about budget deficits on the blog recently and I thought that some perspective on the factors driving the US debt would be worth considering.  Aaron Carroll goes into the real drivers of the debt: increased interest on the debt (due to tax cuts) and increased health care costs.  It is well worth reviewing in detail.

Misleading chart of the day

First, consider this chart (as reproduced by Matthew Yglesias):

Now examine Aaron Carroll's great rebuttal!

In general, I think Yglesias is correct that it is difficult to have any real reliability for 75 year cost projections (I wonder what the confidence limits are?).  So much is likely to change over this period of time and the prioirites of the nation may be so different that it is completely unclear how helpful such an exercise will be.  Not only do we have issues with technological and political change, but it would be odd if no future government altered policy priorities or if we could accurately guess economic growth over such a period. 

Megan McArdle is on hiatus

But there are people carrying on her work.  The argument in Avik Roy's most recent piece (a guest blogger at the Atlantic) seems to be less than well thought out.  It tries to argue that MedicAid is suboptimal insurance and that, therefore, increasing access to MedicAid will reduce health care access overall.  This is the ultimate straw person argument.  Nobody will enroll in MedicAid if they have private health insurance available to them as an option.  So the real issue is whether the uninsured would be better off under MedicAid or under no insurance at all.  Note that you could always choose not to enroll in MedicAid and stay uninsured, if that was your preference.  Nor is it guarenteed that private insurance will always be available to people as costs rise and employers rebel.   

So the real questionm here is whether MedicAid is worse than no insurance at all.  The good folks at the Incidental Economist have a post with a dense series of links as to the complete lack of evidence for this hypothesis. 

Now one could argue that it would be nice if MedicAid were better insurance, but that doesn't seem to the concern of the author of the post.  Instead, it seems to be about reducing support for health care reform without really positing a superior solution.

UPDATE: It seems that the Incidental Economist addressed this twice, with another post pointing out that reimbursements under MedicAid are set to increase (and that this should increase the number of physicians willing to accept MedicAid).

UPDATE 2: Karl Smith has a rather clever point here on the same piece:

Is the suggestion here that the fixed costs associated with running an office are so high that the breakeven point is achieved from a maximum throughput of full insurance patients? And, further that there is simply no way of operating an office with lower overhead? I can see how its not profit maximizing to accept Medicaid patients. I can even see how in a perfectly competitive market providers would have bifurcate into Medicaid and non-Medicaid providers. However, I do not see why the market cannot find a way to provide paying customers with some level of service.

Added Sugars

From Aaron Carroll:

As we talk about how hard it is to combat obesity, it’s worth thinking about numbers like this once in a while. If we could get kids to give up half, not even all, of the added sugar in their diet, their overall calorie consumption would drop by 8%. They’d be dropping about 140-180 calories a day from their diet. And those calories are totally empty – they’re from added sugars they don’t need, and that won’t satiate them. When other research shows that reducing your caloric intake by 20 (yes, twenty) calories per day for three years could lead to an average weight loss of 2 pounds, making this small change could be a big deal.

Okay, there is a good point here and a really bad point here.  The good point is that added sugar seems to be a bad thing.  It promotes tooth decay (with 2 root canals, I can say that this is a big deal), it seems to be efficiently absorbed, it is associated with diabetes (a disease you really do not want), and it's nutrient value is null.

But the idea that a 20 calorie a day change will mechanically lead to a 2 pound weight loss in 3 years is kind of odd.  I mean it works, mathematically.  But it ignores all sorts of issues: like how does the body adapt to less intake, what foods are eaten (is it the same composition with portions shrunk by 1%?), and how this may alter activity levels.  The claim makes something that we know is hard sound very, very easy.

Programs like Weight Watchers seem to partially get good results by restriction, but they also seem to have incentives to change the composition of the diet.  Just look at how fruits and vegetables can be zero points in the current diet.

So, in an odd sort of way, the last point detracts from the main issue here: added sugars are bad and trying to expose your children to less of them is unlikely to be a bad thing.

MedicAid

MedicAid is extremely cost-effective (at least by the standards of US medicine) and protects some of the most vulnerable citizens of the republic. Aaron Caroll goes into just how difficult it would be to make further cuts in MedicAid. But I wonder if the real direction of the debate shouldn't be about expanding coverage for more citizens. After all, the low rate of reimbursements mean that getting treatment under the program will be difficult. This means that people will seek better forms of coverage if they have any options at all. Would it really be terrible to have a public/private hybrid system? Needless to say, I find the idea of MedicAid cuts to be pushing the discussion in the wrong direction.

Student Loans and Emergencies

From the Incidental Economist's comment section:

As a resident manager of David’s House , a beautiful private nonprofit home away from home for families of sick children at Dartmouth Hitchcock Hospital , like a Ronald McDonald House, one of the saddest and most frustrating things I saw was student loan collectors that would not work with parents who had run out of forbearance time to reduce or temporarily waive student loan payments despite their medical emergencies. Even the federal government will operate this way when a student loan goes into collections. Will not work with the debtor at all. We had collection agencies tracking down parents at our facility because, of course, parents who were living there temporarily needed to make the phone number known instead of keeping it confidential. The student loan crisis: another problem that you economists should address.

The decision to make student loans immune to bankruptcy is going to be a problem in the long run, at least so long as the totals become so high.  I meet a surprising number of students with > $100,000 in debt.  It's one thing to allow large debt to occur as part of developing human capital.  But the punishment meted out to people when their lives go wrong seems way disproportionate to the decision to borrow.  This is even more true when you look at the employment rate among Americans without a college degree.

It makes education into a high stakes gamble (at for those who are not already wealthy) instead of a public good that we provide to improve human capital.

Defined Contribution Health Insurance

Via Austin Frakt, there is an interesting piece on defined contribution health insurance. It is an interesting idea and likely not a bad policy direction. I know I would contribute more to my health saving account if the balance could roll over. But, as things are currently set up, it is impossible to plan against a major medical event.

I think that it might be useful to consider this model with some tweaks. Essential to making it work is to include catastrophic event coverage (major medical insurance). Patients will not go out of their way to have heart attacks, stroke, and major cancers just to take advantage of their health care insurance. These events are what really create the "risk" (and thus insurance) part of health care.

Otherwise, it is actually plausible for people to budget for health care expenses and tax sheltered accounts might be a great transition move.

Agendas

I think that this is correct:

Less honest single-payer advocates ignore the issue entirely. More honest and thoughtful single-payer advocates sometimes address it by talking about central planning, global budgets, and transition away from any fee-for-service care. They also talk about moving to an all-non-profit-facility delivery system. And if you think single-payer is unpopular now, wait until people start hearing about those things.

I get why many on the right are uncomfortable with this. There are days I am, too. But I’ll concede one point: if Medicare is so awesome for people age 65 and up, why is it socialism for someone who’s 64?

I, of course, like the plan of going for central planning, global budgets with competitions between treatments based on QALY's, reducing or eliminating fee for service, and see all non-profits in medicine as a great idea. It would do wonders for efficiency and make medical care widely available. It would also do very bad things to people currently invested in health care.

Trying to find a way to compromise on this front is a hard issue. Unlike Dr. Carroll, I think a discussion of end state is important even if it is not a politically feasible option (as it is good to have the end state out and in the public debate). We could lose the debate, but better to lose a debate (this is a democracy and not all policy ideas are going to be implemented) than to try (or appear to try) to sneak an long term agenda in under the radar.

That way there can be an evidence based debate on the issues. So I think that this is a good focus point for those of us thinking single payer -- we need to really lay our cards on the table and explain the totality of why we think that it would be an objective improvement. That way we present a hypothesis against which evidence can be applied and political will gauged.

Glycemic control and diabetes: today's evidence

This paper has the potential to be pretty important:

Intensive glycaemic control for patients with type 2 diabetes: systematic review with meta-analysis and trial sequential analysis of randomised clinical trials

The article is free online but let me quote from the conclusion:

Intensive glycaemic control does not seem to reduce all cause mortality in patients with type 2 diabetes. Data available from randomised clinical trials remain insufficient to prove or refute a relative risk reduction for cardiovascular mortality, non-fatal myocardial infarction, composite microvascular complications, or retinopathy at a magnitude of 10%. Intensive glycaemic control increases the relative risk of severe hypoglycaemia by 30%.

This is actually quite important. It is very difficult for patients to maintain low levels of blood glucose, with consequences in both quality of life and adverse events. Tight glycemic control, for example is the reason that some policy makers have concerns about diabetics driving (due to worries about hypoglycemic attacks).

Given the difficulty of getting diabetics to adhere to tight glycemic control (and concerns about issues like driving), perhaps we should be more cautious in pushing tight control? More interestingly, we should ask why this association seems non-linear, as it is obvious that objectively poor glycemic control is very cardiotoxic.

But this was a very interesting paper for highlighting what we do and not not know.

Tax Levels

From Don Talyor:

If we adopted 21% of GDP as a future target for balancing the budget, we would be saying government spending will be less while the baby boomers are eligible for Medicare and Social Security than it commonly was when they were paying taxes to support these same programs. This will be very hard. Plans seeking balance at lower levels seem implausible.

I think that this is worth keeping in mind. A 21% of GDP budget target would already be a painful and difficult process to achieve with the headwinds we have already due to population aging. Lower levels require a really novel idea about how to reverse these headwinds.

But the options that might really shift the balance (immigration) seem to be out of favor right now.

Health Care Costs

We have known for a while that the United States spends a lot on health care. What is interesting is that the direction seems to be moving in the wrong way both in terms of life expectancy and cost:

You can see that not only is the United States the outlier when it comes to spending, but we are moving in the wrong direction: we are becoming more of a spending outlier, and we are drifting down from the average life expectancy into the lower group (currently surpassing only Turkey, Hungary, Mexico, Poland, and Czech Republic).

and

The other thing you see is that our life expectancy gain was the absolute lowest of the whole group (and we weren’t starting from a particularly high level, as you can see in the previous chart).

Ordinarily, you would think there should be convergence across countries. Since other countries spend less and live longer, you would think that we would learn from them—global competition, you know. But instead we’re moving the wrong way on both dimensions.

The article and neat charts are worth looking at in their entirety.

Now, it is true that there can be a lot of reasons for low life expectancy and high medical costs. It could be that the environment in the United States makes us much more accident prone, for example, requiring both higher spending and more fatalities.

But, in general, it is uncomfortable when the most important metric of health care outcomes (all cause mortality) is so uncorrelated with cost. This suggests the possibility of productivity improvements. I read a lot of the Incidental Economist, who try to explain these issues. But I admit that I tend to come away confused.

The major comparison is often Canada. It is a bad reference on a lot of levels (as they have their own issues). But they have similar culture, ethnic diversity, large geography, heavy use of cars, high levels of obesity and yet they are improving on both metrics (from a lower level of cost and higher life expectancy at baseline).

Why is health care the one area that we aren't willing to look at how other countries have been successful and try to steal ideas?

One of the risks of living is dying

From the incidental economist:

I can hear the howls of protest already. But here’s the example I always go to: the number one killer of children in the US is car accidents. But we don’t ever consider stopping driving. I know that every time I put my kids in a car, I’m significantly increasing the chance that they could die. But I (and pretty much all of you) believe that the benefit to our lives from cars outweighs the increased risk of death in our children. Let me put it another way. We all accept that it’s worth a number of children dying so that we can all get around more easily.

One of the great challenges that we face as a society is how to balance risks and benefits. I am becoming increasingly convinced that people are simply poor at making these trade-offs. This is especially true given that the risk of death is 100%. In a real sense we all end up dying. The goal, instead, seems to be to make the time that we have as good as possible. A theory of the joint maximization of lifespan and happiness seems to be the best way to go.

Given that, I think Dr Carroll's point is quite sound: we take risks all of the time in order to make life worth living. The trick is to quantify which risks are worthwhile, conditional on the absolute level of risk.