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Tag: Economics

HealthcareDIY: An Old Idea Made New

My wisest and longest-time friend in health care, Jane Sarasohn-Kahn has a new project, new research and a new website called HealthcareDIY out today. I encourage all of you to look around her new site and consider the stories she is telling, as they matter to all of us.–Matthew Holt

We’re DIY’ing home renovations, photo development, music playlists, personal financial management, and travel reservations. Increasingly, we’re also DIY’ing health. Think: Maker Faire-Meets-Health.

My thinking about HealthcareDIY was first inspired by my mother Polly, who died 34 years ago this month. She was my first role model for an engaged patient. When she was diagnosed with Hodgkins lymphoma in 1971, there was no internet for her to tap into for a patient network, a clinical trial, or a directory of oncologists or centers of excellence that were Top Doctors for treating the condition.

Polly did, however, absorb the books of Adelle Davis and her Let’s Get Well series on nutrition and health. Polly’s good friend, a librarian with whom she worked, tapped into the Index Medicus on her behalf and retrieved abstracts of articles on blood cancers that he printed out from the microfiche. Polly partnered with her doctor, an internist with a keen interest in hematology, for her care. She also had a huge and diverse social network (offline, of course) that surrounded her with a whole lot of love. Her M.O. was informed by Dr. Bernie Siegel, who started Exceptional Cancer Patients in 1978 and evangelized about patient engagement, living fully with cancer, and dying in peace, which she did, in October 1979.

Among many legacies Polly left me was her can-do attitude when faced with a six-month-prognosis upon diagnosis with Hodgkin’s. Mom worked full-time until the last two years of her life, wore beautifully tailored clothes and put on lipstick every day, and project-managed her health through eight years of treatment: primarily, radiation and blood transfusions. Polly figured out how to take control where she could, and she did it with grace, humor and sheer human will.

She DIY’d her health given the resources she had at-hand between 1971 and 1979: books, cassette tapes, in-person support groups, medical journals in print, a specialist and internist, and lots of love.

In the three decades since Polly’s death, two seismic forces have structurally changed consumers in America: the Great Recession beginning in December 2007, and the near-universal use of the internet in health. Ogilvy’s report, Eyes Wide Open, Wallet Half Shut, found two countervailing forces re-shaping U.S. consumers: re-trenching and re-imagining. On the retrenching side of behavior, people began to do more binging: in media consumption, drinking, and eating.

On the re-imagining front, some people looked to re-invent themselves, reconnect with others, and re-train to re-tool careers. This group of people has sought to be more active and more deliberate, and accept more complexity in daily living. These people are more mindful, more frugal, and open to trading down. 9 in 10 use coupons, shop at discount stores, and buy more store brands and generics.

For this latter group, Ogilvy said, “Self Reliance is the new insurance policy,” with a group ethos believing that, “Americans need to be strong, get their house in order, and protect themselves,” per the report.

That’s where HealthcareDIY comes into play.Continue reading…

Why Explaining the Affordable Care Act Turns Out To Be A Lot Harder Than We Thought It Would Be.

One of the chief aims of the Affordable Care Act (ACA) is the expansion of insurance coverage to individuals who at present either cannot afford it or choose not to purchase it. Unfortunately, many Americans lack the financial literacy needed to navigate the numerous and complex options thrust upon them by the ACA.

The ACA contains a number of mechanisms through which coverage will be expanded, including the individual mandate, the state insurance exchanges, and the expansion of Medicaid.

Yet, while many more Americans will be able to obtain health insurance under the law, the new policies present a complex new choice environment for consumers, one that contains new penalties, new subsidies, and a potentially vast number of plans to choose from.  Successfully navigating these choices requires consumers to be financially literate.

As recognized in research on related areas of financial decision-making – such as retirement planning, investing, and debt – consumers often lack the understanding, ability and confidence to make financial choices that are in their best interest.

To shed light on consumers’ ability to navigate the ACA, we recently examined the distribution of financial literacy by household income.  Our findings were recently posted on the Health Affairs Blog and in a working paper by RAND’s Bing Center for Health Economics.

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The Return of the Greater Common Good

Congress is in recess, but you’d hardly know it. This has been the most do-nothing, gridlocked Congress in decades. But the recess at least offers a pause in the ongoing partisan fighting that’s sure to resume in a few weeks.

It also offers an opportunity to step back and ask ourselves what’s really at stake.

A society — any society —- is defined as a set of mutual benefits and duties embodied most visibly in public institutions: public schools, public libraries, public transportation, public hospitals, public parks, public museums, public recreation, public universities, and so on.

Public institutions are supported by all taxpayers, and are available to all. If the tax system is progressive, those who are better off (and who, presumably, have benefitted from many of these same public institutions) help pay for everyone else.

“Privatize” means “Pay for it yourself.” The practical consequence of this in an economy whose wealth and income are now more concentrated than at any time in the past 90 years is to make high-quality public goods available to fewer and fewer.

In fact, much of what’s called “public” is increasingly a private good paid for by users — ever-higher tolls on public highways and public bridges, higher tuitions at so-called public universities, higher admission fees at public parks and public museums.

Much of the rest of what’s considered “public” has become so shoddy that those who can afford to do so find private alternatives. As public schools deteriorate, the upper-middle class and wealthy send their kids to private ones. As public pools and playgrounds decay, the better-off buy memberships in private tennis and swimming clubs. As public hospitals decline, the well-off pay premium rates for private care.

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Talmudic-Like Studies of Republican Health Reform Ideas

After doing Talmudic-like studies of the doctrines on health reform promulgated by Republican health-policy makers and the conservative economists who inspired them during the past two decades, I am devastated to discover that all of those studies have been for naught. We are now told, sometimes by the same prophets of yore, that these doctrines were not only wrong, but outright heretical, which in this context means un-American.

New doctrines are rumored to be in the making, but the first word on them has yet to be committed to new, sacred tablets, mainly because there have not yet emerged any new ideas worth committing to tablets.

Do not take my word for it. Newt Gingrich, one of the Grand Old Party’s aging prophets, said so himself in his recent speech to the Republican National Committee.

Comes now conservative commentator John R. Graham of the Pacific Research Institute, telling us that Republicans seem lost in the desert even in their hit-and-run insurgency against their sworn enemy, the Affordable Care Act of 2010 (ACA).

What is a befuddled immigrant to the United States like me, eagerly trying to become a right thinking American, to make of it all?

My early introduction to the texts coming from conservative thinking on health reform was the Heritage Plan of 1989, Viewed through the prism of the ACA of 2010, its language seems eerily familiar. One provision, for example, proposed a:

“[m]andate all households to obtain adequate insurance. Many states now require passengers in automobiles to wear seatbelts for their own protection. Many others require anybody driving a car to have liability insurance. But neither the federal government nor any state requires all households to protect themselves from the potentially catastrophic costs of a serious accident or illness. Under the Heritage plan, there would be such a requirement” (p.5).

The Heritage Plan also called for income-related, refundable tax credits toward the purchase of private health insurance. Although it did not call for community rated premiums, it proposed means-tested public subsidies and toward high out-of-pocket expenses of individuals and families. It did not spell out the daunting administrative apparatus that would entail. But one can imagine the required new bureaucratic apparatus, replete with auditors to prevent fraud and abuse. Presumably, income-related subsidies would have involved the Internal Revenue Service (IRS) in some ways as well.

Next came a text put forth by conservative economist Mark V. Pauly and like-minded colleagues in Health Affairs. It is worth a reading again. Here’s the core of these prophets’ proposal:

“In our scheme, every person would be required to obtain basic coverage, through either an individual or a family insurance plan. …All basic plans would be required to cover specified health services; plans could, however, offer more generous benefits or supplemental policies. The maximum out-of-pocket expense (stop-loss) permitted would be geared to income, with more complete coverage required for lower-income people, to ensure that no one faced the risk of out-of-pocket expenses that were catastrophic, given their income.” Again, lots of government intrusion into health care, along with links to the IRS.

There then followed a real life health bill based on these ideas, the late Republican John Chafee’s antidote to the emerging Clinton plan. It was called the “Health Equity and Access Reform Today Act of 1993” and had an impressively long list of Republican co-sponsors, among them Senator’s Orrin Hatch (R-Utah) and Charles Grassley (R-Iowa), now fierce opponents of the ACA. As the folks at the Kaiser Family Foundation have shown, many of its provisions of Chafee’s bill have a striking similarity to provisions in the ACA of 2010 and comparing.

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Beyond the Affordable Care Act: A Framework for Getting Health Care Reform Right

The following was drafted quite a few months ago, and had its genesis in a list of recommendations for improving the health care system that David Dranove solicited from a number of academics for an issue of Health Management, Policy and Innovation. I’ve dawdled in finishing and polishing it up, but seeing the stimulating reform proposal posted  recently by Jay Bhattacharya, Amitabh Chandra, Mike Chernew, Dana Goldman, Anupam Jena, Darius Lakdawalla, Anup Malani and Tom Philipson motivated me to return and finish it; so here it is finally.

Introduction

One can hardly say that there’s been too little discussion of health reform recently. However, much of the discussion is focused on the ACA and its details. That’s fine, but we’ve gotten very far away from thinking about overarching principles that we think should guide the design of a health system, and what that implies for what it would look like [1]. What follows are some thoughts on what such a health reform might look like. They are informed by my read of the research evidence, and my observations of the U.S. health care system over a long period of time, but should be understood as representing only my personal opinions.

This is not intended as a criticism of the ACA. While the ACA certainly isn’t perfect, in my opinion we’re better off as a country with it than without it. However, there will be modifications to the ACA and other changes to the health system as we move forward, so having a framework to structure our thinking will be useful as we consider these inevitable changes.

Guiding Principles

What I propose below is guided by the following. First, economic efficiency is a goal. This simply means avoiding waste, i.e, trying to generate the maximum benefits net of costs. The second goal is that no American is exposed to excessive risk to their health or finances due to medical expenses. Last, the overarching design principle is to create basic ground rules for the system and then let the system run, avoiding heavy handed regulation or micro management. The key objective of these ground rules is to give participants the right incentives insofar as possible, while achieving insurance objectives. With that in mind, compassionate, efficient health reform would do the following.

Health Insurance Reform

First, eliminate the tax exclusion of employer sponsored health insurance. The exclusion of employer sponsored health insurance from income taxation distorts the demand for insurance. This leads to people with employer sponsored health insurance holding excessive coverage, which drives up medical spending and thus insurance premiums. Ironically, not taxing health insurance ends up making both health care and health insurance less affordable. Eliminating the tax exclusion of employer sponsored health insurance will eliminate a major distortion in health insurance, health care, and labor markets. It can generate substantial tax revenues (it’s estimated that the value of the state and federal income tax exclusion for 2009 was $260 billion[2]), while potentially allowing for lower income tax rates. It’s also worth pointing out that the subsidy is biggest for those who face the highest marginal tax rates, i.e., it’s regressive.

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A Health Plan for Rugged Individualists

In his “The Great American Health Care Divide,” Brad DeLong laments the great ideological divide that has so long prevented this great country from developing a coherent national health policy.

I am glad to have Brad’s company, because I have whined about the same divide for several decades now, as evidenced by my “Turning Our Gaze from Bread and Circus Games,” penned in 1995 and “Is there hope for the uninsured?

Finally, after a nice visit with my friends at the Cato Institute and reading the often amazing commentary on John Goodman’s NCPA blog , I was moved to pen a post on The New York Times blog Economix entitled “Social Solidarity vs. Rugged Individualism.” It was inspired by the often hysterical description of the Affordable Care Act (ACA) as a government takeover of U.S. health care or a trampling on the freedom of Americans, as in mandating individuals to have minimally adequate health insurance, lest they become freeloaders on the system.

The basic idea of my proposal is simple.

In 2009, Paul Starr had warned Democrats of a potential voter backlash against the individual mandate and proposed instead a nudging arrangement. Uninsured Americans would be auto-enrolled into health plan, if they chose not to select one, but could opt out of it with the proviso that for the next five years they could then not buy insurance through the insurance exchanges established by the ACA at community-rated premiums, and potentially with federal subsidies.

My proposal is to make that a lifetime exclusion. An individual would have to choose one or the other system by age 25. Should individuals opting out fall seriously ill and not have the means to pay for their care, we would not let them die, of course, but to the extent possible we would cover their full bill – possibly at charges — by expropriating any assets they might have and garnishing any income above the federal poverty level they subsequently might earn. Something like that.

As Jay Gaskill’s somewhat opaque reaction in “RUGGED INDIVIDUALLISM is NOT the Essential Value of Freedom” suggests, people who oppose the ACA as trampling on their freedom are not comfortable with my prescription, which does not at all surprise me.

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Making Sense of Geographic Variations in Health Care: the New IOM Report

Since 1973, when Jack Wennberg published his first paper describing geographic variations in health care, researchers have argued about both the magnitude and the causes of variation.  The argument gained greater policy relevance as U.S. health care spending reached 18 percent of GDP and as evidence mounted, largely from researchers at Dartmouth, that higher spending regions were failing to achieve better outcomes.   The possibility of substantial savings not only helped to motivate reform but also raised the stakes in what had been largely an academic argument.   Some began to raise questions about the Dartmouth research.

Today, the prestigious Institute of Medicine released a committee report, led by Harvard’s Professor Joseph Newhouse and Provost Alan Garber, that weighs in on these issues.

The report, called for by the Affordable Care Act and entitled “Variation in Health Care Spending: Target Decision Making, Not Geography,” deserves a careful read. The committee of 19 distinguished academics and policy experts spent several years documenting the causes and consequences of regional variations and developing solid policy recommendations on what to do about them.  (Disclosure: We helped write a background study for the committee).

But for those trying to make health care better and more affordable, whether in Washington or in communities around the country, there are a few areas where the headlines are likely to gloss over important details in the report.

And we believe that the Committee risks throwing out the baby with the bathwater by appearing, through its choice of title, to turn its back on regional initiatives to improve both health and health care.

What the committee found

The report confirmed three core findings of Dartmouth’s research.

First, geographic variations in spending are substantial, pervasive and persistent over time — the variations are not just random noise. Second, adjusting for individuals’ age, sex, income, race, and health status attenuates these variations, but there’s still plenty that remain. Third, there is little or no correlation between spending and health care quality. The report also effectively identifies the puzzling empirical patterns that don’t fit conveniently into the Dartmouth framework, such as a lack of association between spending in commercial insurance and Medicare populations.

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The GOP’s Endless War on Obamacare-and the White House Delay

The official reason given by the Administration for delaying, by one year, the Affordable Care Act’s mandate that employers with more than 50 full-time workers provide insurance coverage or face fines, is that employers need more time to implement it. The unofficial reason has more to do with the Republicans’ incessant efforts to bulldoze the law.

Soon after the GOP lost its fight against Obamacare in Congress, it began warring against the new legislation in the courts, rounding up and backstopping litigants all the way up to the Supreme Court. Meanwhile, House Republicans have refused to appropriate enough funds to implement the Act, and have held a continuing series of votes to repeal it. Republican-led states have also done what they can to undermine Obamacare, refusing to set up their own health exchanges, and turning down federal money to expand Medicaid.

The GOP’s gleeful reaction to the announced delay confirms Republicans will make repeal a campaign issue in the 2014 midterm elections, which probably contributed to the White House decision to postpone the employer mandate until after the midterms. “The fact remains that Obamacare needs to be repealed,” said Senate Republican leader Mitch McConnell, on hearing news of the delay.

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Would We Be Better Off If Employers Stopped Paying for Health Insurance?

In his “Are Employers to Blame for Our High Medical Prices?,” David Dranove takes issue with my statement in a New York Times blog post:

“One reason for the employers’ passivity in paying health care bills may be that they know, or should know, that the fringe benefits they purchase for their employees ultimately come out of the employees’ total pay package. In a sense, employers behave like pickpockets who take from their employees’ wallets and with the money lifted purchase goodies for their employees.”

He writes:

“The correct economic argument is a bit more nuanced. Employees do not care about the cost of their benefits; they care about the benefits. If an employer can procure the same benefits at a lower cost, the employer need not increase wages one iota. In this regard, there is nothing special about health benefits. Suppose an employer offers employees the use of company cars. Workers don’t care what the employer paid for the cars, and if the employer can purchase cars at a deep discount, it will pocket the savings.”

So far I can buy the nuance. It is something we could theorize about.

But then David he notes that:

“Employers may have an incentive to reduce benefits costs yet they are passive purchasers. With a few exceptions, nearly every American corporation outsources its healthcare benefits to insurers and ASO providers and then looks the other was as the medical bills pile up. Sure, they complain about the high cost of medical care, but they don’t take direct action by aggressively shopping for lower provider prices. Doesn’t this passivity demonstrate a lack of interest? No more so than the fact that auto makers do not aggressively shop the lowest rubber or silica prices implies that they are disinterested in the costs of tires and windows. Auto makers outsource the production of tires and windows (and most other inputs) and let the Michelins and PPGs of the world worry about rubber and silica prices. By the same token, American companies outsource the production of insurance and let the Blues and Uniteds of the world worry about provider prices. This is entirely appropriate.”

Forgive me if by now I am lost. Do we really believe that modern corporations, whose management and board of directors agonize even over an extra penny of earnings per share (EPS) – believe me, I know whereof I speak – simply outsource the procurement of major inputs and then look the other way?

They do seem to do it in health care – which is the puzzle – but they surely do not in connection with other important inputs where smart buying can add pennies to EPS.

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Yes. Employers Really Are to Blame For Our High Medical Prices

I welcome Leah Binder’s earlier post on this blog, written in  response to my blog post in The New York Times. To be thus acknowledged is an honor.

As an economist, I am not trained to respond to Ms. Binder’s deep insights into my psyche, dubious though it may be. Nor, alas, can I delve into hers, fascinating though that might be. Let me therefore concentrate instead just on substance.

First of all, I do not recall calling employers “stupid,” nor did I question their IQ. I do confess to having once called employee benefits managers, when addressing them at some of their usually mournful meetings, “kind-hearted social workers dressed to look like tough Republicans.” At that meeting I contrasted how carefully their company’s tough-minded VP for Procurement, Murgatroid de B. Coverly III, Princeton ’74, purchased paper clips for the company with the much more mellow approach taken by their V.P. of Human Resources to purchase health care for their company’s employees.

Benefit managers – I hate to call them BMs — really are the nicest folks. They care deeply about their employees’ well being (until, of course, the latter lose their job with the company). They worry incessantly about their company’s ever rising outlays for health insurance. And, after a cocktail or two, they regularly lament how rarely they get the attention of top management and of the board of directors – the very folks I once told to go look into a mirror in their search for the culprit behind rising health care costs.

No, when I say “employers” I really mean top management and boards of directors who make the rules. And  I did not even call those mighty ones stupid, but merely “passive payers” as did, by the way, David Dranove on this blog in his critical response to my New York Times piece. Why these usually tough and smart people have behaved so passively in buying health care for themselves and their employees remains a puzzle at the level of economic theory.

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