Posts Tagged ‘health care’
Free Markets and H1N1
In a free market, companies should be allowed to decide whether or not to offer paid sick leave to employees. At the margin, employees who value paid sick leave will flow to companies that offer it and employees that don’t won’t; also at the margin, companies that offer paid sick leave will be able to pay their employees a little less in other forms of compensation. Everything works out for the best.
Unfortunately, not offering paid sick leave creates a classic externality: People go to work even when they’re sick, infecting their co-workers (or customers); employers internalize some of that cost (co-workers), but not all of it (co-workers going home and infecting their kids, who then go to school — because their parents can’t stay home to take care of them — and infect their classmates, etc.). I’ve written before that we are far behind the rest of the developed world in requiring paid sick leave.
What Is Risk Adjustment?
I think I know what it is, and if I’m right it’s very important to health care reform, but it hasn’t gotten a lot of attention.
Risk adjustment is the solution to the following problem. Imagine you tell all the health insurers that they have to accept the healthy and the sick, and they have to charge each the same insurance premium. You may not have to imagine for much longer; this is at the core of all the proposed health care reform bills. (In the Finance Committee bill you can discriminate based on a small number of factors, like age and tobacco usage, but that’s it.)
If you’re a profit-maximizing insurer, what do you do? You try to cherry-pick the healthy, since the revenues will be the same as for the sick and the costs will be lower. If you can do this successfully — say, by only advertising in gyms and in Runner’s World, or maybe by offering additional benefits that only the healthy will want — then you can dump the sick on someone else. That someone else will eventually (after all the private insurers get smart or go out of business) be the public option or the non-profit cooperative, whichever we end up with, which will end up losing money; the net effect is a transfer from taxpayers to private insurers. Now, the fact that insurers participating on exchanges have to take everyone should mitigate this problem, but it won’t go away. In effect, insurers will compete by marketing in ways that attract the healthy and hide from the sick, instead of competing to offer better health care at lower cost.
The Good Part of the Baucus Bill
I’ve been generally critical of the Baucus Bill, primarily because of the reduced subsidies, which I see as an increased tax on the currently uninsured middle class. But luckily Ezra Klein has been providing detailed coverage of what’s good about it – notably, the proposed reforms to the health care delivery system. See his interview with Peter Orszag and his post about Chris Jennings and most of his other posts from yesterday. On my reading, the Baucus Bill will kick off a number of initiatives that will test different ways of reducing costs or improving quality, such as ways of linking payments to outcomes.
I think this is promising because, as I’ve said before, even though we have a general idea of what the problem is – economic incentives that are cut loose from outcomes – we’re not sure how to solve it. As a result, any master plan to reduce costs without sacrificing quality is easy to attack, and given the political dynamics people will be eager to attack it. The answer is that, in the medium term, we have to figure out what does work, and the way to do that is to try lots of different things. This is exactly what a smart business would do, so it’s good to see the government doing it.
By James Kwak
Health Care Reform and Fairness
Over at the Washington Post this week, it’s back to health care reform, and our topic is fairness. Specifically, somebody has to pay if we’re going to have near-universal coverage. Do you think it should be the people who benefit immediately (the uninsured middle class*) or do you think the payment mechanism should have nothing to do with the beneficiaries (like Medicare and, to an extent, Social Security)? I think this comes down to two concepts of what government programs are for. If the former, you probably want low (or zero) subsidies; if the latter, you probably want to tax the rich, tax gasoline, auction off emission permits, or something like that.
By James Kwak
Voodoo Cost Savings
If you really want to know about Max Baucus’s bill, head on over to Ezra Klein’s blog, which is all Baucus, all day. If you want to complain about fake cost-saving measures, stay here.
A major selling point of the Baucus bill (can’t really call it the Group of Six bill with zero Republican support; can’t call it the Democratic bill with questionable Democratic support), at least in the media, is its lower cost – $860 billion according to Baucus, $770 billion according to the CBO. This compares to the $1 trillion cost of the House bill. But this is a meaningless number, for two reasons.
No, Wait! This Is What I Really Want!
I try not to comment on purely political issues, but sometimes they are just too infuriating.
Over the last few days, Max Baucus has been leaking “his” health care proposal, which should be made public. Regular readers will know I’m no fan of Max Baucus, whose main goals seem to be killing the public option (I know, it’s not as big deal as it’s made out to be, but it isn’t irrelevant) and cutting subsidies to poor people. But supposedly, the whole point of the Baucus/Group of Six approach was that it would result in a bipartisan bill that could clear the Senate. The tradeoff was very simple; a plan that isn’t as good as it could be, but one that could pass.
Yesterday, The New York Times reported two of the three Republicans in the Group of Six, Charles Grassley and Michael Enzi, are against the Baucus proposal, and even Olympia Snowe wants changes.
The Importance of Outcomes
Last week, Bill Moyers interviewed Jim Yong Kim, a distinguished medical professor and leader of nonprofit organizations and the new president of Dartmouth College. A lot of Kim’s work is dedicated to improving health in the developing world, so you might think he is some sort of soft-hearted lefty. But one of his main points about our health care problems was that our health care delivery system is not sufficiently tough-minded and calculating, and that health care providers can learn a lot from the business world. For example:
“JIM YONG KIM: So a patient comes into the hospital. There’s a judgment made the minute that patient walks into the emergency room about how sick that person is. And then there are relays of information from the triage nurse to the physician, from the physician to the other physician, who comes on the shift.
“From them to the ward team, that takes over that patient. There’s so many just transfers of information. You know, we haven’t looked at that transfer of information the way that, for example, Southwest Airlines has. Apparently they do it better than any other company in the world.
“BILL MOYERS: Computers?
“DR. JIM YONG KIM: No, they have taken seriously the human science of how you transfer simple information from one person to the next. And in medical school, and in the hospitals that I’ve worked in, we’ve done it ad hoc. Sometimes we do it well. Sometimes we don’t do it well. But what we know is that transfer of information is critical. Now to me, again, that’s the rocket science. That’s the human rocket science of how you make health care systems work well.”
Another Year, Another Decline in Employer-Based Coverage
Ezra Klein shows the new Census figures on the uninsured. The long-term trend is absolutely clear: employer-based coverage is declining and public coverage is increasing, but not enough to make up the gap. Looking at the underlying data, we can see that 2008 was the eighth consecutive year in which the proportion of people covered by employer-based health insurance declined.
This is a point I’ve also tried to make before. Not only is employer-based coverage deteriorating, but the reasons for that deterioration imply that it is likely to only accelerate. As health care costs continue to increase, even if the rate of increase stays the same, the rate of deterioration will increase, because each year health care costs become a larger proportion of total costs and therefore harder to absorb. (Put another way, if health care cost inflation remains around 7% per year, each year it will be 7% of a larger proportion of employers’ costs.) Deterioration will take three forms – some employers will drop health coverage altogether, some will increase the share paid by employees, and some will shift toward less-generous plans.
Klein’s point is that it may be dangerous to premise health care reform on the idea that the employer-based system will remain what it is, because it won’t. My point was that because the employer-based system is slowly dying, people with employer-based coverage should not be thinking, “I don’t need health care reform, I’ve got my employer-based plan;” they should be thinking, “I’m afraid of what will happen when my employer drops its plan, so I need health care reform.” Unfortunately, I think both of us are right.
By James Kwak
The Myth of Consumer Choice
I’m such a public radio groupie that David Kestenbaum and Chana Joffe-Walt are minor idols of mine. I get excited on the very occasional occasions when David calls to ask me a question, and Chana . . . well, if I were in my twenties and single, I would probably have a crush on her. So I was disappointed to listen through their recent Planet Money episode on health care, waiting for them to tell the other side of the story, but finally being left to yell at my radio. (No, I don’t actually yell at inanimate objects, but you know what I mean.)
David and Chana use the metaphor of an all-you-can-eat buffet to illustrate the well-known problem in health care that end consumers don’t bear anything near the full costs of their choices, which ordinarily leads to overconsumption. One problem with our health care system is high costs, so it’s common to blame high costs on the all-you-can-eat buffet.
Healthcare Rationing Is Good
This guest post was contributed by StatsGuy, a regular commenter on this blog.
In the current healthcare debate, Conservatives warn us that a single payer system will bring government rationing… Progressives argue that we already have rationing, based on wealth. Both sides are right, but both pretend that rationing is bad. Yet as every economist knows, the allocation of scarce resources is the basis of economics itself. The question is not whether we will have rationing – the question is how to structure a system of rationing that accomplishes our goals.
Two primary themes dominate this debate:
The Uninsured: In the past two decades, both the total number and the percentage of uninsured have increased in spite of some modest programs designed to expand coverage (like CHIP). (Original chart is here.)
The graph above, which extends through 2007, has surely worsened since 57% of US citizens are insured through their workplace (down from 63% in 2000) and unemployment increased from under 5% to 9.4% in the last couple years.
The March of Science and Health Care Reform
On a Planet Money podcast two weeks ago, economist Charlie Wheelan weighed in on the significance of genetic testing – the advancing ability of science to determine your genetic makeup, including your propensity to develop various serious or costly illnesses. This really crystallizes one dimension of the health care debate.
If insurers know what your projected long-term health care costs are, because they can read your genetic code, then they are going to price accordingly – and that’s exactly what insurers should do in an unregulated market. This produces the dystopian world where not only are some people unlucky because their genes make them more likely to suffer in various ways, but on top of that they can’t get health insurance and therefore health care.
“Paying for” Health Care Reform
This week’s Washington Post health care column is on the question of whether we can afford health care reform – meaning whether we can afford to subsidize poor and middle-class people who cannot otherwise pay for health insurance. This has a different meaning depending on you interpret “we” as the U.S. economy in general or the federal government, but in either case we think the answer is “yes.” Or at least, as far as the federal government is concerned, the answer is that we can’t afford not doing some form of health care reform, although it’s not certain that the reforms currently on the table will be sufficient to solve our government’s long-term fiscal problems.
In summary:
“If you are for fiscal discipline, you should be for health-care reform. If our government cannot produce some kind of reform, that will only reinforce the perception that our political system is incapable of resolving our largest, most difficult problem — and that is what will make investors think twice about investing in America.”
By James Kwak
Comments on the Health Care Debate
Last week, Mike Konczal got a little grief for saying that we have “the smartest comments section on the nets,” and while I’m not sure that’s literally true, I am frequently astounded at the quality of many of our comments. Instead of writing more on health care for today, I want to point you to a few comment threads on my previous post, “Medicare and the Public Option.”
1. StatsGuy on why the current reform proposals will subsidize and therefore increase overtreatment and drive up costs (which alone is worth the price of admission).
2. Russ and others on why nothing at all is better than reform without a public option (I don’t agree with him, though).
3. Carson Gross, anne, and Frank Tobin on high-deductible plans and making consumers aware of costs (I don’t agree with Carson, either).
And many, many more …
Also, StatsGuy recommends this article on the incentives faced by physicians, as do I.
By James Kwak
Medicare and the Public Option
Simon and I have our latest weekly column up at the Washington Post. The topic is contradictions: opponents of the public option who bill themselves as defenders of Medicare, opponents of cost savings who support private health insurers, and so on. It’s also about a world without a public option:
Imagine health-care reform without a public option: Insurers have to charge the same price regardless of customers’ medical history; everyone has to buy insurance; and poor people get subsidies to help them afford it. From the insurers’ perspective, they get more than 40 million new customers, they subsidize the old and sick by overcharging the young and healthy (who have to overpay because of the mandate), and the government even pays people to buy their product. There are no new competitors (additional choices for customers), and there is no pressure to reduce costs. What could be better?
As we’ve said before, I think this is still far better than the current situation. Ezra Klein recently made the point much more forcefully. But still, reform without the public option could be a recipe for private insurers to charge whatever they feel like charging. Alex Tabarrok, not the first person you would expect to write a post called “In Defense of the Public Option,” writes:
Since escape via non-purchase will no longer be a potential response to higher prices, mandatory purchase will reduce the elasticity of demand giving firms an incentive to increase prices. Moreover, in oligopolistic markets, a more homogeneous product can increase the ability of firms to collude.
I believe that health insurance reform will increase the market power of insurance firms and drive up prices. In this scenario, the public option at least has a raison d’etre, although whether it actually fulfills it’s purpose is an open question.
By James Kwak
Change or More of the Same?
Matt Yglesias’s comments on James Surowiecki on the health care reform debate triggered a few thoughts in my head.
First, Surowiecki (after describing how people fear reform because they tend to fear change):
Because it’s hard for individuals to get affordable health insurance, and most people are insured through work, keeping your insurance means keeping your job. But in today’s economy there’s obviously no guarantee that you can do that. On top of that, even if you have insurance there’s a small but meaningful chance that when you actually get sick you’ll find out that your insurance doesn’t cover what you thought it did (in the case of what’s called “rescission”). In other words, the endowment that insured people want to hold on to is much shakier than it appears. Changing the system so that individuals can get affordable health care, while banning bad behavior on the part of insurance companies, will actually make it more likely, not less, that people will get to preserve their current level of coverage.
This is basically what Simon and I argued in the Washington Post a couple weeks ago, and I’m glad that someone with a much bigger platform is saying it, too.
