iPhones versus health care

This is Joseph.

There was a recent comment to the Jason Chaffetz's comments that people might allocate resources to health care instead of iPhones.  This is such a huge admission of ignorance as to how expensive the United States health care system is that it is hard to know where to start.

For example, Duncan Black argues that smart phones are actually a pretty major part of basic needs in modern America:

A new phone high end phone costs 500-800 bucks. If I could buy health insurance (Real, not bullshit) for my family for that I'd happily give up my new phone. Of course, the two years ago high end model phone costs $200. The somewhat shittier and not quite latest and greatest can probably be had for 50 bucks. Your older brother can probably give you a handmedown for free. So, phones are not really that expensive (service is in the US because of our shitty noncompetitive market and lax regulation, go to Yurp and pay 20 bucks per month max). Also they're the only way lots of people have regular internet access, so they're pretty much necessary. Smartphones are not luxury items, they're required. 

I like this take because it weaves in a second piece to the puzzle -- monthly service costs are high in the United States.  The more marginally housing somebody is, the less they can afford to have things like land-line telephones (that come with expensive connection charges that presume people are not mobile).  If you needed one item to connect to the outside world, the thing that can act as a phone, gives you a stable phone number, allows you to send texts, and allows you to interface with the internet solves a lot of problems all by itself.  And when you consider used phones then the comparison gets even sillier.

But there is another piece to this puzzle.  Health care costs in the United States are opaque, literally to the point that I couldn't imagine a way to parody them.  Look at this video from Vox (youtube here).  At the end of the process of trying to find out how much it would cost to give birth in a hospital (any hospital), spending hours on the phone trying to get this price quote, the final bill was off by a factor of two.  So you can't realistically price shop in the United States for a foreseeable medical expense (let alone an emergency room visit).

It's not really a case of putting "skin in the game".  People often can only find out prices after the service has been provided -- especially since the system is filled with all sorts of little details that are difficult to estimate ahead of time (how many $50 ibuprofen will you need and is there is a reason you can't bring your own supply?).

There is an important conversation about providing health care in the United States.  But it centers around comparative costs, pricing transparency, the inflexibility of moving with current employer sponsored health care, and how to handle people with economic insufficiency.  It's not an accident that "single payer" style systems are brought up a lot -- they directly attack all of the major problems.  Maybe not the only solution, but trading in smart phones isn't looking like a good deal either.

Negotiating costs

A correspondent to Talking Points Memo makes a point that matches my experience:

I've spent years making medical decisions based on the out-of-pocket cost. I've passed on doctor-advised MRIs because they would cost me $1,000 (and don't even get me started on the myth of how patients can negotiate with providers--a notion propagated largely by people who've never had to try it), and just this week I had to decide whether to have a follow-up visit with a neurologist for vertigo or see a podiatrist about an ongoing running injury.

If there was a robustly competitive market then maybe it would be different.  But most people have insurance and there isn't really a whole lot of ability to bargain down prices.  I found it to be surprisingly challenging to be allowed in to see a medical doctor, paying the full (very high) sticker price. 

I don't want to say that it has never worked for anybody (the US is large), but most of the time you are happy to find a provider at all.

Alternative thoughts

I read this passage:

For some people, disability insurance has become a way of exiting the labor force. It's hard for me to get into high dudgeon over these people, because I suspect that many of them have at least mild disabilities and also lousy job prospects, especially the last few years. But the hard fact is that the disability insurance program has limited funds, and is headed for bankruptcy. If it pays those funds to a substantial number people who are only marginally disabled,  and could be working, it cannot pay higher benefits to the more severely disabled.

in the context of this passage

There are private-sector consulting companies who are hired by states and paid several thousand dollars for every person who they manage to shift from a cash welfare program, which is partly funded by the state, over to disability insurance, which is funded by the federal government. 

And my reaction is very different than the original authors.  On one hand, I think that the possibility that disability funds might dry up is a call to raising revenue.  Helping the disabled (even the partially disabled) out is one of the characteristics of basic  human decency.

On the other hand, maybe we should just stop having the federal government subsidize state programs and simply run them directly. Because these games waste a ton of resources without actually making the system work any better.  A beggar thy neighbor strategy, in the long run, leads to everyone being poor.

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

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.

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.

When a toothache is fatal

This post by Megan McArdle is absolutely required reading for anybody interested in arguing for true free markets in health care. An excerpt:

A commenter says that according to local news reports, he was quoted a price of $27 for the antibiotic (sounds like erythromycin, then), and $3 for a painkiller. I believe the former, but I have a very hard time swallowing the latter. I mean, I guess I could be wrong, but I am very skeptical that there is a pharmacy out there that sells more than a dose or two of any prescription painkiller for $3. If he chose to take two vicodin over antibiotics, when he must have known that this was not a long-term solution, I have to question his decision-making even more deeply.

But what this illustrates is just how hard it is to make a decision when in extreme levels of pain. I believe the legal term is "diminished capacity". Now, this sort of tragedy can happen under nationalized health care too. But imagine what happens if this type of decision making is extended to emergency rooms?

Medical Free Markets

This is a very interesting post by Karl Smith:

Lack of jobs is why everyone feels bad, not because they have less or are poorer or the country isn’t producing or consuming as much. And, not to get to meta – in what I hope is an easily readable post – but an economy that makes lots of people feel bad is by definition a bad economy.

Moreover, the feeling that you have now about the economy is not the feeling of lack of value creation. Its not the feeling of socialism.

I wish I had more time to go into this because “what socialism feels like” is an important concept. However, my more conservative readers will may readily get the following example.

Have you ever been pissed off at the fact that your neighborhood school doesn’t teach any of the stuff you want and it feels like your kid is just wasting her valuable time going to all of these pointless classes for no reason. THAT, is what socialism feels like. That is what the lack of value creation feels like.

Its not that you are afraid of losing what you have or that budget constraints are pinching. Its that the stuff which is available to you sucks. It – in extreme cases – is a world where everyone has a job but where no grocery store has fresh milk. It’s a world where everyone gets a pay check but no one can find shoes that fit.

That is what socialism feels like. That is what government getting in the way of the market feels like. In many ways it’s the exact opposite of the way this feels.

Because you know I can’t resist: When you are waiting in your doctor’s office and she is 50mins late and proceeds to be rude to you and not give you “permission” to go buy the drug that you are dying to buy because its finally been “approved.” That’s what socialism feels like.

It is an important insight that much of the current crisis is not caused by excessive government intervention. Now, it could be true that we could get to a bad place with the addition of excessive government oversight, but I think it is fair to accept that we are not there yet.

That being said, I think the argument about seeing medical doctors (and how familiar this experience is in the US) should give us pause when we argue that the current medical system is free market. It isn't. It's also one of our few areas of growth (which Tyler Cowen sees as rent seeking areas absorbing the unemployed) which is also worth thinking about.

I wonder if we are asking the right questions about the long term?

Medicare versus Social Security

I hear this point a lot:

At any politically plausible margin, it makes more sense to take $1 out of Medicare than to take it out of Social Security. Social Security checks can be used to buy health care services.

I think that this analysis neglects one key point. Medical care in the United States (or anywhere, for that matter), is hard to bargain with at the time of a procedure (especially an emergent one). It is hard to discuss prices at the ER door during a myocardial infarct, where minutes matter. Here, the real benefit of medicare is the ability to exert market power to set standardized prices (to avoid the power asymmetry otherwise present in medical bargaining).

It is not ideal, but I have not yet come up with a better idea than collective price setting and my own experiences as an uninsured person in the US were certainly eye-opening in this regard. It was amazing how few doctors would even consider accepting cash for services.

Is health care choice important?

Aaron Carroll has a nice overview of the situation in Florida where people who campaigned on health care choice seem to be removing for state employees. He quotes this news story:

Florida is changing part of its state-employee health insurance program to offer only one HMO in each county. The state Department of Management Services, which oversees employee insurance, said changes in the program would save an estimated $400 million over two years. The changes also would require thousands of state employees to switch to different HMOs, a process that would begin in late September.

I wonder if these positions are more harmonious than they appear on first glance. If the goal is to make government service less appealing, reducing health care choice (and thus competition) makes these positions less desirable.

How to improve health care for the poor

I really want to make sure that this post from Megan McArdle isn't overlooked in the discussion of the debt ceiling. There are not a lot of bloggers who have been in my situation in my 20's -- desperately poor and with a difficult medical condition (that was not my fault). But she has.

As a result, she has the correct instincts for services that would really assist the poor:

This is actually not inconsistent with other findings. For example, every time we get a health care expansion, people predict large falls in emergency room usage. Supposedly, we'll save huge sums by shifting people from expensive ER visits to cheap primary care sessions. Unfortunately, the savings have been elusive; in Massachusetts, the largest such experiment we have to date, ER visits actually rose.

Why? ER's are much more convenient. The working poor usually have much less flexibility in their schedules than the middle class. They work shifts, they may need a doctor's note to miss work, and if they don't work, they often don't get paid.

Note that this implies a totally different solution to the problem of "non-emergent ER visits": urgent care or "Minute Clinics" that work odd hours. Otherwise, you just cram even more people into the same ER space*. It is easy to come up with "Just So" stories in health care. The reforms always sound wonderful, and the benefits always unfold in a beautifully logical way. Unfortunately, people, and reality, are rarely as predictable as the models.

When you are short of money for food, leaving work to sit in an MDs office is a major sacrifice. If you are here in the Southeast and do not drive then the cost in time to make it via public transit can be huge. I have seen sick days used as a part of evaluations. I have worked in a small business where I was the only person in the store and leaving it would cause a crisis.

If you are dying of a myocardial infarct then leaving your job is clearly the right decision. But I would leg infections that started small . . . and sometimes did not progress. If I was able to get an antibiotics prescription then I'd avoid the ER.

I have tried going to "minute clinics" but they all refuse to treat because it was not on the symptom list. A last minute appointment at an MDs office was a huge issue.

I saw some good signs of improvement in Seattle where they put an urgent care clinic (open until something like 1 am) right next to the ER. I joined that HMO and it made a huge difference in my quality of life when a medical event happened.

These days I am a professor and these issues are lessened. But I think it is worth keeping in mind just how crucial these services can be for the poor, even if they are unpopular with people who work a 9 to 5 schedule.

This is a big deal

California is considering a single payer health care system. Unlike Vermont, which is a small market, a successful single payer system in California would be strong evidence that the plan is viable in a broader US context.

In the long run, containing health care costs is a major issue. While I am sure that there are alternatives to the US and Canadian systems, it is hard to argue with the better outcomes and lower costs of a single payer system. I suspect that they are even more attractive to a state like California which has a long history of budget issues.

Clarity Has A Well-Known Liberal Bias

Paul Krugman:

Because it is, you know, a plan to dismantle Medicare. When you transform a program that pays seniors’ medical bills into a program that gives them a voucher that almost certainly isn’t enough to buy adequate insurance, you can call the new scheme Medicare, but it isn’t the same program.

I think it is possible to have a discussion about the future of Medicare, as it is pretty clear that the current program involves some compromises. But I also think that it is really important that it be an honest discussion about what we are planning to do.

A conservative view on health care reform

I usually read Outside the Beltway to get smart opinions that I am also likely to disagree with. It is one of my ways to avoid being trapped in an “echo chamber” and to get a diversity of views. Today, however, I have to admit that this piece by Steven L. Taylor is very much on point:

Ultimately, all I want is some honesty in the public discourse on these issues, starting with three facts:

a. Yes, Medicare needs reforming,

b. Magical thinking about market forces is not going to work.** I have simply come to the point in thinking about all of this that I believe this assertion to be a dead end.

c. If all other OECD countries do a better job than we do in terms of cost and service, then perhaps we need to be realistic about that fact and look outside for viable models.***

By the way, I don’t pretend to have the answers to this conundrum, but I do think that the debate had to take place within logical parameters that address the actual situation at hand.

[some bridging text deleted to include the relevant footnotes. ed.]

**Understand: there was once a time when I, too, believed that markets in all things was the way to go. Empirical observation, and recognition of the reality around me, has altered my view on this. I still fundamentally believe in markets, but recognize that one size does not fit all.

***This is something else I have changed my view on over time. Indeed, I am not alone. See, for example, the following post from Reason‘s editor-in-chief, Matt Welch: Why I Prefer French Health Care (and yes, the libertarian magazine, Reason).

Now I am sympathetic to the argument that true free market health care hasn't been tried anytime recently. It has some issues that would have to be overcome. Externalities due to antibiotic overuse, for example, are not trivial to handle outside of regulation. Nor is it clear precisely how one would handle fraud in a way that would not be a legal nightmare.

But there are health care models that are both more and less functional than the current United States model. Why would we not look more closely at, for example, the German model before assuming that a massive social experiment makes sense?

A False Dichotomy

In a lot of discussions about health care systems, the Americans point to the Canadians and say "we don;t want that". Curiously, the Canadians point to the Americans and say "we certainly can't imagine that system being a good idea". But merely looking at these two (fairly extreme) examples is a fundemental failure of imagination. A lot of countries have developed health care systems and it would be remarkable if we couldn't learn a lot from them.

Consider a Libertarian's view of the French health care system:

What’s more, none of these anecdotes scratches the surface of France’s chief advantage, and the main reason socialized medicine remains a perennial temptation in this country: In France, you are covered, period. It doesn’t depend on your job, it doesn’t depend on a health maintenance organization, and it doesn’t depend on whether you filled out the paperwork right. Those who (like me) oppose ObamaCare, need to understand (also like me, unfortunately) what it’s like to be serially rejected by insurance companies even though you’re perfectly healthy. It’s an enraging, anxiety-inducing, indelible experience, one that both softens the intellectual ground for increased government intervention and produces active resentment toward anyone who argues that the U.S. has “the best health care in the world.”

The anecodates as to the efficiency of the system are pretty interesting as well. I can tell you from personal experience that the Canadians are unlikely to have the author's happy experience with universal short wait times.

So maybe we should be looking more broadly for examples?

Health Care and Confusion

One of the most important underlying issues preventing efficient markets for health care is explained in a Dilbert cartoon.

Health Insurance

Discussion of individual health insurance (with or wihtout pre-existing medical conditions) often overlooks the point that a pay as you go system is inherently expensive here in the United States. Consider:

Why did we even need insurance? First, we wanted to know that, if we had a medical catastrophe, we would not exhaust our savings. Second, uninsured patients are billed more than the rates that insurers negotiate with doctors and hospitals, and we wanted to pay those lower rates. The difference is significant: my recent M.R.I. cost $1,300 at the “retail” rate, while the rate negotiated by the insurance company was $700.

Obviously standard market mechanisms are not going to be able to kick in when the only way to get affordable care is to be part of a pooled insurance plan. And, with rate differentials this high, no sane person will exit the health insurance market. So the whole idea of free market heakth care is a bit of a distraction: our system is designed for people who have insurance.

[Not to mention the impact of policies that can be rescinded for good faith errors; these factors make the market opaque and resistant to market forces]

Health care and economies of scale

As mentioned before, I always like to be cautious when drawing conclusions from different countries, cultures and hemispheres. With that caveat out of the way, this Marketplace story about an Indian health insurance program is definitely interesting and possibly important as well.

Shetty and his team of 40 cardiac surgeons at Narayana Hrudayalaya Hospital are used to conversations like this one. They perform many more operations each year than comparable U.S. hospitals.

Shetty: This is a thousand-bed heart hospital. We do about 33 to 35 heart surgeries a day.

About a third of all of the patients at Shetty's hospital are farmers from rural villages. They're here because they have something called Yeshaswini insurance. It doesn't cover routine doctors visits for, say, a cough or a cold, but the insurance does cover all surgical procedures. The farmer pays approximately three cents a month; the government puts in one and a half cents and farmers cooperatives operate the program. Shetty believes there's strength in numbers.

For another story of medical developments coming from unlikely places, check out this story on battlefield medicine (this time from NPR).

A serious discussion of the role of barter in health care

Last week I suggested that someone should dig into candidate Lowden's suggestion more deeply. I'm glad to say someone has.

The Colbert Report	Mon - Thurs 11:30pm / 10:30c
Indecision 2010 Midterm Elections - Sue Lowden
www.colbertnation.com
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I'm amazed that no one in the audience seemed to know what a chicken ranch was.

A chicken in every pot, a couple more for your HMO

Sue Lowden, the candidate who is currently on track to become the next senator from Nevada recently said about health care:

"And I would have suggested, and I think that bartering is really good. Those doctors who you pay cash, you can barter, and that would get prices down in a hurry. And I would say go out, go ahead out and pay cash for whatever your medical needs are, and go ahead and barter with your doctor."

My first thought was that she meant 'barter' in the figurative sense, that patients should try to cut a deal with their doctors, not that patients should literally give doctors goods and services in lieu of cash.

I was mistaken:

The campaign of Senate candidate Sue Lowden (R-NV) is continuing to stand by Lowden's call for the use of the barter system as a means to bring down health care costs.

On Monday, Lowden doubled down on the barter idea: "You know, before we all started having health care, in the olden days, our grandparents, they would bring a chicken to the doctor. They would say I'll paint your house."

[TPM] asked Lowden spokesperson Crystal Feldman how this could ever be a workable policy, in an era of costly procedures, tests, pharmaceuticals and provider networks? "Americans are struggling to pay for their health care, and in order to afford coverage we must explore all options available to drive costs down," Feldman told TPMDC in an e-mail.

Feldman continued: "Bartering with your doctor is not a new concept. There have been numerous reports as to how negotiating with your doctor is an option and doctors have gone on the record verifying this. Unfortunately, Harry Reid's failed leadership forces us to take drastic measures. The fact remains that instead of producing a health care solution Americans support, Harry Reid spends his time focusing on attacking his biggest threat to another six years in Washington, Sue Lowden."

Aside from comic potential here (there are a lot of services you can barter for in Nevada), this suggests an interesting thought experiment:

Assuming that medical costs were driven by individual doctors and not by hospitals and drug companies (which really can't be bartered with), what would the introduction of barter do to the economics of health care? I would think that the introduction of wide-scale bartering would make the market less efficient and would produce more maldistribution of resources. Is this always true or is this another case where the strange economics of health care produce counter-intuitive results? And what would the other consequences be?

Given that there are approximately eight gazillion economics blogs out there, is there any chance that someone who knows what he or she is talking about could answer this one for us?