Tag Archives: health care

Incentives Don’t Work

By James Kwak

Driving home from school today, I listened to a Fresh Air interview from two months ago with Atul Gawande, by now perhaps the most famous doctor in the policy intelligentsia. The interview was based on a New Yorker article discussing how some doctors and even some health care payor organizations are trying to reduce health care costs for the most expensive people while improving outcomes. In Camden, New Jersey, one doctor found that one percent of people generate thirty percent of health care costs.

One refrain you heard incessantly during the health care reform debate was that we have high health care costs because of overconsumption and we have overconsumption because people don’t bear a high enough share of their marginal health care costs, so the solution is to increase copays and deductibles. This is what Economics 101 would tell you: people respond to incentives. But Gawande discussed one large company that tried this year after year, but only saw their costs going up. The problem was that while most members responded to the higher copays and kept their costs more or less steady, the 5 percent of members who generated 60 percent of the costs behaved differently. Or, rather, they also reduced consumption (of doctor’s visits and prescription medications), but as a result they often had catastrophic outcomes. These were people with heart disease on cholesterol-lowering medications, and when they went off their medications they ended up in the hospital with heart attacks and then with congestive heart failure.

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The Problems with Rivlin-Ryan

By James Kwak

Uwe Reinhardt has a post about the Rivlin-Ryan Medicare Plan, which would convert Medicare into a voucher program for people currently under 55 and also fix the growth rate of the value of the vouchers at GDP growth plus one percentage point. The issue Reinhardt focuses on, and which I also blogged about a while back, is that health care costs have been climbing considerably faster than that, so over time the value of the vouchers will fall relative to real health care costs.

But another problem is that, at least according to the CBO’s summary, the Rivlin-Ryan plan doesn’t say anything about how elderly people will buy insurance. Today, the cost of Medicare is reduced by the program’s bargaining power with providers. which means the total amount spent by Medicare is less than the total amount that would be spent by all Medicare beneficiaries if they had to buy insurance on the individual market. A voucher system would push them into the individual market, which means that the amount they would have to spend would go up dramatically.

Now, it’s possible that the Rivlin-Ryan plan takes the Obama health care reform and its reforms to the individual market (including a prohibition on medical underwriting and the creation of exchanges for buying insurance) as a starting point. But that would be interesting, since Paul Ryan voted to repeal the Obama health care reform.

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Health Care Non-Solutions

By James Kwak

Ezra Klein makes an important point about our nation’s health care problem: it’s not just a government deficit problem. The underlying problem is that health care costs are not only growing faster than prices (inflation), but also faster than GDP (economic growth), and as a result the amount of stuff we as a nation will be able to afford, other than health care, will start to go down at some point in the future. (Picture originally from Joseph Newhouse in Health Affairs.)

This means that proposals to solve the long-term budget deficit problem by cutting Medicare benefits are not solutions: they simply shift the problem from the government to individuals–which means they shift the problem from us as taxpayers to us as old people or us as family members of old people.* If, for example, we increase the eligibility age for Medicare from 65 to 67, the government saves money, but only because people who are 65 and 66 lose money–or, alternatively, all of us lose money because their employers now have to pay more for health care.

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Bad Software

By James Kwak

Planet Money did a story this week on the problems with medical billing. This is something I’ve been vaguely interested in for a long time; nine years ago, we seriously thought about it as a business opportunity for our company.

The Planet Money team said that there is $7 billion in waste in the medical billing process per year, which sounds like a lot until you realize that it isn’t. (Total healthcare costs in the United States are on the order of $2 trillion, I believe.) But the story had a great example of the problems with enterprise software that I’ve written about before.

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What’s Next for Health Care?

By James Kwak

I should leave the country more often: I go away and suddenly we have (near-)universal health care coverage! (Well, we’ll have to wait a few years for all of the health care reform provisions to kick in, but you know what I mean.) Not only that, but Ezra Klein reminds me that we even got rid of the pointless subsidy to the banking industry in the student loan program (where the government guaranteed the loans but let private lenders earn profits making the loans, even though the guarantee obviated the need for underwriting).

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Are Health Insurers Worth Bashing?

This guest post was contributed by Andrzej Kuhl, a colleague of mine from a former life. Andrzej is a management consultant based in Montclair, New Jersey.  His company, Kuhl Solutions, helps improve the efficiency and effectiveness of operations in financial sector companies.

I am getting thoroughly frustrated with a facet of the health care debate – the singular focus on health insurers, with total disregard of other contributors to health care costs.  Yes, I am in total agreement with the concept of providing health insurance to folks who currently cannot afford it, or who do not have access at any cost (because of pre-existing conditions).  I also believe that the rate of increase of health spending needs to be significantly reduced.  But, I do not believe that we can achieve any meaningful health spending reduction just by bashing or financially squeezing the health insurance companies.

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The Republican Plan, III: Comic Relief

(This is a multi-post series on the Republicans’ Roadmap for America’s Future. Part I was on how it slashes Medicare spending. Part II was on how it shifts risk from the government to individuals.)

The Roadmap brings up the issue that there is little price transparency in the health care market. This is the solution:

“The environment resembles what existed in the securities markets before the stock market crash of 1929. Abuse, fraud, and misinformation about the nature of stocks and the rules governing their purchase were rampant. In response, the Securities and Exchange Commission [SEC] was formed with the main purpose of bringing transparency to the market and restoring consumer confidence.

“With the increasingly rapid transformation of the financial markets and the growing complexity of financial transactions, the private sector began to take a more prominent role in developing accounting guidelines; and eventually the SEC began relying on the private sector to establish the basic standards by which it would be regulated. Since 1973, the SEC has recognized the nongovernment Financial Accounting Standards Board [FASB] as the authoritative standard-setting organization for financial accounting and reporting information. While the SEC has statutory authority to establish such financial standards, it has historically adopted FASB rules. The SEC allows the private sector to establish its own disclosure standards, so long as it demonstrates the ability to fulfill the responsibility in the public interest. The authority to enforce the standards, however, falls solely to the SEC.

“Applying this model to the health care industry will allow all stakeholders to come together, without heavy-handed government intervention, to establish uniform and reliable measures by which to report quality and price information.”

Enron? WorldCom? Self-regulation? FASB, the SEC, and the securities industry are their example?

By James Kwak

The Republican Plan, II: You’re On Your Own

In my previous post on the Roadmap for America’s Future, I discussed how the Republican plan is based on converting Medicare into a voucher program and then slashing the vouchers drastically relative to current Medicare spending projections, leaving seniors without the ability to buy anything close to what they get from Medicare today. In that post, I compared projected Medicare vouchers under the Roadmap to projected Medicare spending under current law. If you assume that, in the Roadmap world, the cost of Medicare-equivalent health insurance will be the same as currently projected Medicare spending, then people will die.

But, Paul Ryan would argue, the Roadmap is going to bring down the cost of health care, so the fact that we’re providing less support won’t matter. Put another way, he might say, Obama’s plan also counts on bringing down the cost of health care, so why can’t I make the same assumption? There are two problems with this argument.

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The Republican Plan, I: People Will Die

So the Republicans have a deficit reduction and a health care plan, all wrapped into one, the “Roadmap for America’s Future.” It’s being pushed by Paul Ryan, in part because he’s the ranking member of the House Budget Committee, in part because he’s good-looking and articulate, in part to provide the party plausible deniability if it flops (like Bobby Jindal a year ago). The CBO says that it will balance the budget and even eliminate the national debt by 2080. Ezra Klein and Matt Yglesias have commented on it. Klein says, “I wouldn’t balance the budget in anything like the way Ryan proposes. His solution works by making care less affordable for seniors. . . . But his proposal is among the few I’ve seen that’s willing to propose solutions in proportion to the problem.” Yglesias says “it’s totally unworkable.” But they’re both being much too kind.

Ryan realizes that “the deficit problem is a health-care problem,” which he agreed to in an interview with Klein. That’s good. He realizes that to solve the deficit you have to do something about Medicare. That’s good. He also puts forward a logically coherent conservative position. That’s good in itself and especially refreshing after the Bush era (and the unfunded Medicare prescription drug benefit) and all the recent posturing of the Republicans as defenders of Medicare (Mitch McConnell: “Cutting Medicare is not what Americans want.“) Ryan’s plan is basically to cut Medicare like never imagined before.

But everything else about the plan is such an unmitigated disaster I’m going to devote a whole paragraph at some point to thinking about how to label this plan. It will be a long time before we get there, though, broken into a couple of blog posts, because there are so many problems to go over.

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One More Thing . . .

. . . on that deficit commission. If I were Peter Orszag, I would be tearing my hair out. (Or maybe not, since he’s happily engaged to be married later this year.)

It’s obvious, and I’ve said it before, but I’ll say it again. The big long-term national debt problem is all about health care. This chart is from the January 2008 Budget and Economic Outlook of the Congressional Budget Office–for those keeping score, that’s one year before President Obama took office. It shows projected federal spending as a percentage of GDP.

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Design or Incompetence, Part Two

Last week I wrote a post about how banks entice customers with promotions and then fail to keep up their end of the bargain, forcing customers to waste their time just getting the bank to do what it promised to do in the first place. As I wrote, then, the problem is by no means limited to the financial sector.

David Lazarus of the Los Angeles Times has a horror story about Aetna, the large health insurance company. The basic facts are:

  1. Aetna increased a customer’s monthly premium by $32 as of August.
  2. On September 30, Aetna sent her a letter saying her premium had gone up. (This is the letter supplied to the Los Angeles Times by Aetna, which I think is pretty clear proof there was no earlier letter.)
  3. Beginning in October, the customer began paying the higher premium.
  4. In November, Aetna rejected payment for a doctor’s bill.
  5. The customer contacted Aetna, who said she had missed payment for October–which wasn’t true (she had paid the higher premium for October).
  6. When the customer appealed, Aetna wouldn’t let her simply pay the extra $64 (the difference for August and September), and insisted on rescinding her policy.

The customer in question is a cancer survivor who needs regular medication and checkups–hence the kind of customer that health insurance companies want to drop if at all possible.

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So This Is What an Election Is Like

Martha Coakley just called me for, oh, the fifteenth time over the long weekend. I get multiple fliers in my mailbox every day. People from other states are calling me and asking me to volunteer. I’m sure I would be seeing nonstop ads on TV, except I don’t watch TV. All this started within the last week when, as many news outlets have noted, the Democrats woke up and realized they might actually lose Ted Kennedy’s Senate seat.

We’re not used to competitive elections here in Massachusetts, certainly not competitive elections with national implications. But this one is huge. The Republicans have been admirably or distressingly able, depending on your perspective, to hold forty votes against more or less anything the Democrats and President Obama want to accomplish, including health care reform. I think it’s a fairly easy bet that if Coakley loses, health care reform is dead until 2013 at the earliest, since there is no chance the Republicans will allow anything that looks like an accomplishment to occur if they can possibly help it. So if you live in Massachusetts, and you care about health care reform one way or the other, you should take the time to vote tomorrow.

Update: A friend emailed to point out that should Brown win, the House Democrats could pass the Senate bill, which presumably would not then have to go back to the Senate to be voted on again. (If the conference committee modifies the Senate bill, then it would have to go back.) Then some provisions could be modified through the budget reconciliation process, which only requires 51 votes. So a Coakley defeat might not be the end.

As for the comment about whether the Democrats could have negotiated with the Republicans to pick off one or two votes, they tried that for months–first via the Baucus Group of Six, then later directly with Snowe. Snowe ended up pulling out saying that the Democrats were rushing the bill, when they had spent several months talking to her specifically.

By James Kwak

United States Health Care Spending

The vast discrepancy between what we spend on health care and what every other prosperous (or not-so-prosperous) country spends on health care–and the little good it does us–is so well-known that it’s not going to change any minds when it comes to health care reform. Opponents of reform have come up with their rationalizations (more spending on technology, someone has to subsidize cheap drugs for the rest of the world, etc.), some of which contain grains of truth. But even if people aren’t listening any more, that doesn’t make it any less true.

Ezra Klein brings us the latest reminders. Here’s the most amazing graph from National Geographic:

That’s a clever trick, putting the outlier above the title of the chart. I’ll have to try it sometime.

By James Kwak

Small Steps and Health Care Costs

Hey all you deficit hawks out there. Atul Gawande, the person of the year when it comes to health care, has a long article on the cost-cutting proposals in the health care reform bill (hat tip Ezra Klein). Gawande’s main point is that the long list of pilot programs and other initiatives in the bill are probably the best possible way to reduce costs in the health care system (which, if you missed the implication, is the only way to control long-term government spending–that or eliminating Medicare).

Indeed, it’s hard to see what else the bill could have done. Remember, we have a largely private-sector health care system (both insurance and delivery), which means the government cannot simply order providers to charge less. A single-payer system might be able to take such draconian steps, but Mitch McConnell, who claims, “Two thousand seventy-four pages and trillions of dollars later, this bill doesn’t even meet the basic goal that the American people had in mind and what they thought this debate was all about: to lower costs,” is the last person who would vote for single payer. And the Republicans are similarly against anything that allows the government to use the one big lever it does have–Medicare–to force lower cost levels.

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A Few Words on Health Care Reform and Medicare Buy-In

From Ezra Klein:

“[Doctors] should be forced to work in a way that doesn’t hurt society. That, after all, is the guiding principle behind the insurance reforms: Insurers will have to live with a market that society can live with. Similarly, providers will have to live within a market that society can afford. That will mean a strict budget, at least within the federal programs (and over time, as the private programs become unaffordable, they will probably come on budget as well). …

“It’s that or national bankruptcy. And the problem, if left untreated, will only get worse, and the eventual correction, when it comes, will only be more severe. That, however, is exactly what they’re asking Snowe, and the rest of Congress, to permit. The fear with Medicare buy-in is that Medicare pays somewhat lower rates than private insurers because it tries to live within a budget, even if it fails. But like it or not, that’s the future, or one variant of it.”

Am I being hypocritical in allowing Ezra Klein to use the words “national bankruptcy?”

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