The Incidental Economist

In this morning’s Wonkbook, Ezra Klein suggests that the Medicaid eligible in states that don’t expand the program might turn out to be a meaningful political force.

It’s a truism of health-care politics that the uninsured are impossible to organize. But Obamacare creates an extraordinarily unusual situation. The Affordable Care Act will implemented in states that reject Medicaid. There will be huge mobilization efforts in those states, too, as well as lots of press coverage of the new law. The campaign to tell people making between 133 and 400 percent of poverty that they can get some help buying insurance will catch quite a few people making less than that in its net. And then those people will be told that they would get health insurance entirely for free but for an act of their governor and/or state legislature.

I’d keep an eye on how provider associations — particularly hospitals — respond. They’re the groups that both have something to lose here and are organized to do something about it. I’d keep half of my second eye on insurers. Even though Medicaid can be expanded as a public program, it could also be expanded in a way that throws more business toward insurance companies (e.g., Arkansas’s private option).

If insurers and providers put their lobbying muscle and money where their interests are, they might swing none too few local elections in a way that favors expansion. That’s when the Medicaid dam may break. The next set of state and local election cycles could be very interesting.

@afrakt

The success of the healthcare law “depends on reaching everyone who is uninsured, but particularly young people who may feel like they don’t need insurance,” said Larry Levitt, a senior vice president at the Kaiser Family Foundation.

That’s from an Anna Gorman piece in the LA Times. I think we need to dig a little deeper into what we mean by statements like “the success of the healthcare law depends on young people signing up.” What do we mean by “success”? Here are some possibilities. Success means …

1. Maximizing coverage
2. Minimizing average premium
3. Reducing uncompensated care
4. Providing a set of choices that is relatively stable over time

These are all different goals. The first, maximizing coverage, implies an ambition to get young people, indeed all people, to sign up. That is the goal of some reform advocates, but they don’t always state it or say why it is a good thing in and of itself (if it is).

The second, minimizing average premium, would happen if only the healthiest person signed up and nobody else. Nobody really has this as a goal. What some may have in mind that is similar is keeping premiums low for older people who really need coverage by pulling in younger, healthier people into the risk pool. This is a cross-subsidy goal, and is the focus of much debate. (Young people are being penalized! Not fair! Etc.) Basically, this goal is about managing the risk pool, trying to draw a mix of risks, not just high risks.

Perhaps a better way to phrase the second goal is: providing universal access to affordable health insurance. In this guise, having younger people in the risk pool helps increase access to insurance among older people by lowering its price. Of course, the law’s subsidies also play that role, lowering the out-of-pocket premium in an income-sensitive way. What a pool of lower risk really does is reduce the federal government’s liability for the cost of those subsidies.

The third, reducing uncompensated care, would happen as more people who use care they can’t afford get insured. A young, healthy person who doesn’t use care can’t reduce uncompensated care by signing up for coverage. Of course, we can’t know in advance who will need care or how much they will need relative to their resources. There are other ways to address uncompensated care, though they have disadvantages too.

Finally, the fourth goal, is about establishing a market that doesn’t experience a death spiral due to risk selection that becomes more adverse over time, driving premiums ever higher as it does so. This goal is similar to number 2, but it’s about premium changes over time, not their level at any one point. But notice, you can have a stable risk pool that doesn’t include young people.  True, on average insurance will be more expensive if young people don’t buy it. But if the types of people who do buy it keep doing so — a stable risk pool — the market will not unravel over time.

I get a little uncomfortable when someone starts saying that we must get young people to buy insurance. I would like to hear a more careful and complete articulation what goal(s) they have in mind. If it is just a stable market for those who want coverage, it’s not necessary for young people to participate. Probably their goals are broader than that. Let’s hear what they are!

@afrakt

Even though all who comment, by virtue of submitting one, have agreed to the site’s comment policy, it seems we need to remind you about it now and then. In summary, you’re supposed to:

• Be brief
• Be clean and respectiful (disagreements are fine, ad hominem is not)
• Provide evidence (citations, links) for claims

Go read the details as needed. We’ve been a bit lax on the “provide evidence” clause, but will start tightening up again. Comments out of compliance will not be approved. Now you know why. And no, the comments policy is not open to debate.

@afrakt

Elisabeth Rosenthal’s piece in The New York Times today is receiving the customary “it’s the prices, stupid” applause and “I told you so” on Twitter, including from me. However, a reader writes me with another view that’s worth sharing.

I left it with the opposite impression of everyone on Twitter. The take-home seems to be “its the prices,” but I’m not seeing that.

In this article, the primary problem was not that we pay more for colonoscopies, we’re buying different things! The colonoscopy was a little more expensive, but the real difference in Europe was that we also buy an anesthesiologist and a surgical center along with it.

It’s like buying pasta with or without truffle oil – of course it costs more, that doesn’t mean the pasta with truffle oil is priced too high.

Why’s this matter? It would lead to totally different policies. If it’s the prices, the secret would be to decrease pay scales. If it’s overuse (in this case, overuse of surgical centers and anesthesiologists, not colonoscopies) then we need more oversight or a more complex adjusted capitation system. (Would ACOs be enough to fix this?)

Indeed, it can be both prices and “intensity,” if not volume. Volume can be coarsely measured as visits and scans and such, but intensity — roughly how much we load up each procedure with ancillary stuff — is less frequently considered and is what my correspondent is getting at. Do you agree? Go read Rosenthal’s story and express your view in the comments.

@afrakt

Reader CG noticed the questions I was posing on Twitter today to Avik Roy about the safety net component of Singapore’s health system, Medifund. He sent me to two sources (the latter a PDF), which I’ve examined. He also shared his own summary, which is a good enough start to quote.

From what I can tell from the Minister of Health’s FAQ, it is way different from [US] Medicaid []. Essentially, Singapore set up a fund that collects interest. The interest from this fund is available to the public hospitals to cover the costs for patients who cannot afford services after Medisave [compulsory, personal health savings accounts financed by a payroll tax]. Patients who utilize the lowest classes of hospital ward are eligible to receive Medifund. A committee at each hospital reviews requests to access the fund and determines whether or not a patient can access the fund and the amount they will receive. These committees can take into account historical contributions to Medisave (to encourage personal responsibility, again, according to the MoH website).

I do not believe there is anything like Medifund for outpatient primary care. As far ask I can tell, the public clinics will provide for some discounted services.

I think you could make the argument that the Singapore system differs from the post ACA US system in one broad sense. There appears to be a lot of government intervention on the supply and price side of the equation in Singapore while the US has largely chosen to interfere on the payor side. The Health Affairs article makes it sound like there is a public option-like theory when it comes to hospitals and clinics in Singapore. If the government gets more involved with hospitals and clinics, prices would go down across the whole system.

I admit, I got it wrong on Medifund in my prior post on Singapore. It isn’t very much like Medicaid.

In addition to Medisave and Medifund, there is Singapore’s MediShield, a government-run, “catastrophic” hospital insurance plan with a deductible of about $1,200 (in U.S. dollars) per year. Premiums are age rated and are shockingly low. Even for an 85 year old they’re below $1,000 U.S. per year. I don’t think this is all due to competition and the structure of the insurance scheme. It seems that Singapore also subsidizes hospital costs directly. So, individual liability is below full cost. As for outpatient care, Singapore subsidizes that directly too. This is basically public insurance with a layer of compulsory savings/personal responsibility.

I did some further poking around to try to find out to what extent the Singapore government influences health care prices. In the time I spent, I didn’t find any details, only things like this:

Another key focus of the Government has been to ensure that overall health expenditure does not fall victim to the significant inflationary pressures that have been evident throughout the world. This has been achieved by actively regulating the supply and prices of healthcare services in the country.

I have no reason to doubt Singapore’s health system is great in many ways. But it is awfully hard to pull apart the components of what makes it cheap. Is it the insurance scheme? No doubt that plays a role. Is it the government influence on prices? That has to matter. And, of course it is cheap to the individual for these reasons and the direct subsidies for care.

What, if any, of this could reasonably be imported to the U.S.? Almost all of it would be a heavy political lift. More price controls? Compulsory health savings accounts? A program akin to (catastrophic) Medicare for all? Name one insurer or provider that would support any of this. Like it or not, if you can’t get them on board, it ain’t gonna happen. If you think I’m wrong, explain to me how you think winning campaigns for national office are funded. Explain to me how many such campaigns it would take. (Hint: 218 (House) + 60 (Senate) + 1 (president).)

That’s not to say some of these changes wouldn’t be great, including real campaign finance reform. It’s only to say I don’t see them happening. However, deductibles are growing for employer-sponsored plans anyway. Perhaps Congress could be enticed to simplify and improve health savings account options. Providers might back that if it facilitated more spending. Still, that’s a far cry from a Singapore-like system.

Some people say they care deeply about helping the poor afford greater access to health care. Some of the same people are also advocating not expanding Medicaid because it isn’t enough like the Singapore system. It is my understanding Avik Roy holds these two views. (I will correct this post if he tells me that is not so.) If you are such a person, then you must believe that a Singapore-like system is coming to American soon. Though I’m not opposed to it, I just don’t see any indication that this could be so.

@afrakt

From DoghouseDiaries:

@afrakt

From time to time we think about changing the blog’s name. There are advantages and limitations to the current name. It’s known, but it doesn’t convey what we do. It’s a legacy name, originating from when I was an anonymous blogger on a personal finance site. There, I was The Incidental Economist, and I was so because I have no formal economics training and fell into a branch of economics sort of incidentally. (Cute,  huh?)

One, though not the only or most important, reason we have never changed the name is that we have not come up with a good alternative. It’s not enough to be a good name. It has to be a unique one, not used by another blog or media source. Ideally it would suggest something about our focus: relating health and health systems research to policy.

I’m not promising we will change our name, but if you have any good alternatives to The Incidental Economist, let us know.

@afrakt

In an email exchange with Jed Graham about his post, I wrote,

I suppose if the catastrophic premium were low enough, the deductible is almost irrelevant. I mean, yeah, people may not be able to afford it, but in a case of a real catastrophe, at least the liability (whether the patient’s or, ultimately, the providers’ if the patient can’t pay) is limited.

It argues for universal catastrophic (with income-sensitive subsidies, both for the premium and the deductible), which I would support. Of course, some may want to fill in below that, which I wouldn’t object to either. But they should do that with their own funds.

I figured I ought to share this with readers since many seem to think I’m anti-catastrophic. Clearly, I’m not. It is probably fair to say that, once upon a time, I hadn’t thought things through enough to be sure how I felt about something like a universal catastrophic scheme. It’s also fair to say that John Goodman’s book deserves some credit (or he does, really) for helping me do that thinking. Although, to be totally fair, I deserve a lot of credit for wading through the heap of absurdities I found in his book before extracting the few nuggets I think have merit. And, finally, he also deserves credit for taking licks like “heap of absurdities” in stride. Say what you will about John, but he’s a good sport.

But enough with the Goodman love fest. I’ll conclude by noting two things. First, a pro-skin-in-the-game (to the extent  affordable, in some sense) position is not the same thing as a pro-repeal-Obamacare position. Far from it. These are reconciled by the recognition of political constraints and realities. (Where’s the coalition for a replacement?)

Second, employer-sponsored insurance is gradually moving toward higher deductibles anyway. I think this is inevitable. The big question is the extent to which other publicly subsidized programs from Medicare to Obamacare will be modified to follow and support this evolution, and even help it work better.

I’ll quit now and take my abuse in the comments. Let’s see just how thick my skin is.

@afrakt 

In a new NBER working paper, Katherine Baicker, Michael Chernew, and Jacob Robbins estimate the extent to which Medicare Advantage (MA) induces changes in other parts of the health care market.

More than a quarter of Medicare beneficiaries are enrolled in Medicare Advantage, which was created in large part to improve the efficiency of health care delivery by promoting competition among private managed care plans. This paper explores the spillover effects of the Medicare Advantage program on the traditional Medicare program and other patients, taking advantage of changes in Medicare Advantage payment policy to isolate exogenous increases in Medicare Advantage enrollment and trace out the effects of greater managed care penetration on hospital utilization and spending throughout the health care system. We find that when more seniors enroll in Medicare managed care, hospital costs decline for all seniors and for commercially insured younger populations. Greater managed care penetration is not associated with fewer hospitalizations, but is associated with lower costs and shorter stays per hospitalization. These spillovers are substantial – offsetting more than 10% of increased payments to Medicare Advantage plans.

I’ll spare you the methodological details (instrumental variables, again) except to mention that some of their analysis focuses on five states, Florida, New York, California, Arizona, and Massachusetts, which account for almost half of all MA enrollees. Based on their estimates,

increasing MA monthly payments by $100 (about one standard deviation) would increase the share of beneficiaries in MA by just under 5 percentage points, or from an average of about 35% in 2009 in the counties represented in the 5-state [] sample to about 40%, increasing the number of enrollees by about 400,000 in these states. This would increase total MA spending by $100 per month for the existing and new enrollees, or almost $5 billion in total for these states. Overall costs of hospital care is estimated to go down by something like 2% when MA penetration increases by 5 percentage points, off a base of total hospital costs for the [traditional Medicare] population remaining in these states (after the implied shift to MA) of just under $30 billion, or about $600 million. Hospital costs for those in [traditional Medicare] would thus go down by upwards of 10% of the increase in spending on MA.

However, the 2% reduction in hospital care cost also applies to the commercial market, so the estimated, system-wide savings are larger than estimated in this example. (Why didn’t the authors provide the system-wide savings figure?) Still, it’s unlikely that additional MA payments are fully offset by spillovers.

Prior TIE coverage of related work on Medicare HMO spillovers is here. That post explains why you can’t keep raising MA payments forever and expect large spillovers. There is some maximal payment rate that optimizes them, beyond which paying more doesn’t return as much in spillover goodness.

At some point all the practice pattern changes have been wrung out of the system and there’s no more spillover juice left. Where’s the threshold? I don’t know. Nobody does.

That post also includes some of the background I was too lazy to write again for this post. The paper itself also has a nice discussion of spillover mechanisms. It’s worth a read if you have access to it.

@afrakt

From a recent paper by Gerhardt et al. (PDF):

There is clear geographic clustering, with relatively lower rates in most of the western half of the country, with the exception of in and near California, and relatively higher rates in the eastern half, with the exception of the upper mid-west. I wonder to what extent this variation can be explained by disease burden vs. system factors (acknowledging the endogeneity of diagnoses).

@afrakt