Category Archives: Economics of Health Care

Health Care and Education in the U.S.

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In a post on his new blog, Neerav Kingsland writes,

Ultimately, charter school districts are simply single payer education systems.

The theme of the post is that using charter schools still leaves education less privatized than health care under Obamacare. So why is the left disturbed by charter schools? Some comments:

1. As Kingsland hints, one may ask conversely, why is the right so disturbed by Obamacare? In fact, many on the left have complained about this.

2. Many on the left are not happy with Obamacare. They prefer something like Britain’s NHS.

3. Starting points matter. We started from a health care system that was less centrally managed than Obamacare, so Obamacare represents a move to the left. We started from an education system that was more government-run than charter schools, so charter schools represent a move to the right.

4. There are many on the right who doubt the efficacy of charter schools for precisely the reason that Kingsland says that the left should like them. That is, they can be thought of as government outsourcing education, but still controlling it.

Another Alternative to the FDA Process

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Alex Tabarrok writes,

MelaFind was submitted for marketing approval in Europe in May 2011. It was approved just five months later. One key reason for Europe’s efficient approval process is that European governments don’t review medical devices directly. Instead they certify independent “notified bodies” that specialize and compete to review new products. The European system works more quickly than the U.S. system, and there is no evidence that it results in reduced patient safety. Rather than tweak the current system, why doesn’t the U.S. just adopt the European model and call it a day? Our health and our economy would be better off for it.

Reihan Salam points to a review by Daniel Klein from 2001 of a book by Henry I. Miller.

Miller develops a reform proposal that would attempt to institutionalize the cooperative virtues of the European systems. Drug development and application would be overseen by nongovernmental “drug certifying bodies.” They would compete with one another for hire by companies developing a new drug. The hired drug-certifying body would oversee investigation, help develop the new drug application, and then make an initial decision on the application—that is, decide whether to certify the drug. The European agencies would also be permitted to serve as drug-certifying bodies. The company and its certifying body would then go together to the FDA for final approval of the new drug. The FDA, therefore, would retain final authority, but would rely on a set of trusted drug-certifying bodies, which would compete to get it right, do it quickly, and keep fees low. Under such a regime, says Miller, the FDA “becomes primarily a certifier of certifiers, rather than a certifier of products.”

Speaking of the FDA, apparently, as soon as someone writes an app for a mobile phone that does something like monitor glucose levels, this threatens to make turn the phone into a medical device, inviting the FDA to regulate.Scott Gottlieb and Colleen Klasmeier write,

The ambiguity created by the guidance and the agency’s premarket review processes forces innovators to seek the FDA’s nod for every new launch and every small advance. This slows progress to a crawl. Worse, the lag may be almost entirely unnecessary, as most of these products are not properly regarded as a medical device in the first place.

Robert Doar on the Ryan Plan

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He says,

He left out Medicaid, I think, because he recognizes that he couldn’t commit to preserving funding levels for it because it’s unrealistic as a fiscal matter. Unless we address Medicaid’s spending trajectory, we won’t be able to address our fiscal problems.

In other words, if he folds Medicaid in with other anti-poverty programs, he either has to cut the total amount spent on poverty or leave in place a fiscal doomsday machine. I’ll have to think about that argument.

Imagine No FDA

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Kevin Tracey writes,

Since news of this clinical trial’s success became public, people from all over the U.S. stricken with rheumatoid arthritis have emailed, called and sent letters pressing for their shot at potentially effective—but not yet FDA-approved—treatments. Most wrote that they would gladly travel to Europe if it meant they could get access to the device.

That’s exactly the point: Some patients are very willing to take a calculated risk, but misaligned incentives in the industry are driving potential stakeholders with new solutions out of the business.

Imagine that we had no FDA, but we understood that deceptive advertising and patient ignorance can lead to bad outcomes. It seems to me that principles-based regulation could work.

The basic principle might be: the patient must be capable of understanding and articulating the risks and potential benefits of a proposed treatment. One possible way for a doctor to prove that this principle is satisfied is by recording an interview with a patient in which the patient explains in his own words why he is choosing this particular treatment.

A Peevish Thought on Obamacare

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Timothy Taylor writes,

Setting up a health insurance system that offers the right incentives to patients and providers for cost-effectiveness and innovation is a fundamentally difficult task, and those practical challenges don’t disappear just by invoking talismanic phrases like “universal coverage” or “single-payer.”

The worst thing about Obamacare is not the web site glitches or the employer mandates or even the high marginal tax rates. The worst thing is that the Obama folks regard catastrophic health insurance (what I call “real insurance”) as bad and they view “insurance” that covers every little expense as good. I think it’s the other way around.

Even if you think that people will skimp on checkups if they have catastrophic coverage, then the right policy is to subsidize checkups, not insulate them from the cost of all medical services.

I like to say that as individuals, we want unlimited access to medical services without having to pay for them. Comprehensive health insurance does offer that. However, collectively, that does not work. If medical services aren’t rationed by individuals making choices, they have to be rationed by bureaucrats.

That brings us to the Independent Payment Advisory Board, or what Sarah Palin called the death panels. The IPAB is the only economically meaningful mechanism for reducing spending under Obamacare. Fifteen bureaucrats in Washington will tell doctors and patients what to do and what not to do.

If Obamacare remains in place, then I predict that in ten years IPAB will be the most powerful agency in Washington. More powerful than the Fed, the NSA, or the IRS. In fact, the health care reformers on the left want it that way. Former Senator Tom Daschle explicitly said that we need something like the Fed to run health care.

Have a nice day.

Employment and ACA

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Casey Mulligan writes,

the ACA will put millions of workers in the economically extreme situation of having zero short-term financial reward (or less) to working full-time rather than part-time.

In economics jargon, this means the ACA creates marginal tax rates on labor income that exceed 100 percent.

The SNEP solution might be as follows:

1. Re-orient health financing policy toward catastrophic health insurance and health savings accounts. Create a national standard catastrophic health insurance plan that acts like true insurance and is reasonably affordable.

2. Repeal the ACA.

3. For non-elderly households with able-bodied adults, replace Medicaid and other means-tested programs with the universal benefit or flex-benefit.

4. For a household without health insurance who receives the flex-benefits, automatically allocate an amount of flexdollars toward health insurance. Perhaps the first $1500 per person in a household would go toward a combination of health insurance (which could be the national standard catastrophic plan) and a health savings account.

5. Close to half of current Medicaid spending is on the elderly and the disabled. I do not think that the flex-benefit system deals with those groups. At this point, I do not see a better approach than Medicaid in those cases.

This would create something like universal health insurance coverage, but with an emphasis on real insurance rather than Medicaid or pre-paid health plans. It also would get rid of the problem of high marginal tax rates. Thus, it would be better than the ACA in both dimensions–there would be fewer households without health insurance and fewer households facing strong disincentives to work.

RtG on Health Care

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The essay is by James Capretta. He says that there are four keys to health care reform.

First, the basic market orientation of this approach is in a sense its overarching characteristic…allow providers on the ground to try new ways to deliver quality care at a low cost

When during the question period I said that RtG sounded tentative and timid, without strong specifics, the moderator rebuked me, saying that I needed to read the sections on health care and education. But, honestly, I did not see anything specific in Capretta’s chapter that indicates a policy change that would contribute to the worthy objective given above.

His second idea is to

place an upper limit on the amount of employer-paid premiums that would enjoy tax-preferred status.

That is fine, although I thought that at one point some sort of penalty for “Cadillac health plans” was part of Obamacare. Of course, if it ever was part of Obamacare, it probably got waived.

Anyway, Capretta also proposes an age-graduated tax credit to people without employer-provided health insurance. So without being especially charitable, I can say that he is specific on his point two. However, I have to quibble and say that while such a tax credit may be good on horizontal equity grounds–putting different categories of consumers on the same footing–it tends to worsen the overall bias that consists of subsidizing health insurance through the tax code.

His third idea is continuous-coverage protection. The idea as I understand it is to outlaw making risk adjustments to anyone who already has insurance coverage. If you never had coverage and you walk in to an insurance company with a bad illness, too bad for you. But if you were covered before, you have to be given rates that do not penalize your bad illness. That strikes me as a reasonable approach, although I still think we will need high-risk insurance pools. There are going to be people who choose not to insure and then find out that they have an expensive illness, and we are not going to bankrupt them.

His fourth idea is to enable Medicaid recipients to take a cash-equivalent voucher to purchase health insurance. Again, that is a reasonable idea. But as he points out, we need to sort out the state-Federal mix in Medicaid, which right now creates perverse incentives for states to over-spend Federal money.

With SNEP, I am thinking in terms of integrating all means-tested programs, including Medicaid. There is another piece in RtG, by Scott Winship, which alludes to the Oren Cass Flex Fund. But Capretta’s Medicaid ideas and the Flex Fund are an example of two specifics in RtG that strike me as not fitting together.

So, of Capretta’s four keys, the first has no specifics (no reforms of the supply side of medical care), the second involves a new tax credit that may or may not be a net improvement, the third seems fine to me, and the fourth strikes me as incompatible with other specific proposals in the book.

Public Health and Conscientiousness

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Timothy Taylor writes,

Personal habits and public policies regarding cleanliness changed so much in the 19th and into the early 20th century that historians sometimes write of a “sanitation revolution,” which led to dramatic improvements in public health. It’s time to ramp up a “chronic disease revolution,” which would include the health care system but also reach beyond it. Modern information technology, and the coming arrival of the “Internet-of-things” will open up new possibilities here. A pillbox could be wired into the Internet, and if it isn’t opened at the appropriate times during the day, the person would receive a text or email, and then a phone call, and then maybe a personal visit of reminder. It’s now possible for a home machine to take a small blood sample from a diabetic, analyze that sample, and send in the results. Information technology makes it much easier to have interactive systems that offer reminders about diet or exercise. The benefits from improved management of chronic conditions is potentially very large.

Taylor is calling for an increase in conscientiousness, with the aid of technology. The late Gary Becker was fond of saying that young people behave as if they expect that in their lifetimes medications will be able to undo the adverse impact of overeating–and they are probably right. So Becker was arguing that technology may allow people to do away with conscientiousness.

Two Affirmations

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1. From Jason Potts.

For conservatives, public funding of arts and culture is worthy when it supports the values of civilisation, which means a John Ruskin type view of the best of cultural heritage: museums, galleries, botanical gardens and opera will always do well here. What this group is hostile to are threats against that – barbarism – which come from the transgressive, edgy frontiers of arts and culture.

He offers a three-axis model take on arts funding.

2. From Tim Harford.

People are too used to the idea that someone else – the state or an insurer – will pay the bill. Free choice is nice but what everyone seems to prefer is free treatment.

Pointer from Mark Thoma. I call it the desire to be insulated from paying for health care.

John Goodman’s Perspective on Health Care Economics

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He writes,

While it is true that we spend more than other countries in an accounting sense, we actually use fewer real resources: fewer doctors, fewer nurses, fewer hospital beds, shorter lengths of stay, etc. That means that from an economist’s point of view, we aren’t necessarily spending more than other countries.

I get the sense that left-wing health economists can get an op-ed in a major newspaper pretty much any time they want. Goodman’s point of view is less widely circulated.