• For- vs. not-for-profit insurers

    The question arose on Twitter how for- and not-for-profit insurers differ. There’s at least one paper on this subject (h/t Janet Weiner). [Update: There's another.*] I noted it once in a reading list, but never posted details. Let’s fix that.

    From Does it Matter if Your Health Insurer is For-Profit? Effects of Ownership on Premiums, Insurance Coverage, and Medical Spending, by Leemore Dafny and Subramaniam Ramanarayanan (NBER, 2012):

    In this study, we use a large, national panel dataset on employer-provided insurance between 1997 and 2009 to study the effect of ownership status on self and fully-insured premiums. We supplement these data with state-level measures of insurance coverage and medical loss ratios. [...]

    A 27-percentage point increase in local FP [for profit] share (one standard deviation) is predicted to raise fully-insured premiums by roughly 7 percent; the effect on self-insured premiums is smaller and cannot consistently be distinguished from zero. Importantly, we do not observe different pre-conversion price trends in markets ultimately experiencing conversions relative to markets whose BCBS affiliates attempted but failed to convert.

    [W]e find heterogeneous effects of conversions in markets with different degrees of BCBS activity. Specifically, we estimate that fully-insured premiums increased roughly 13 percent when converting BCBS plans had shares in excess of the mean pre-conversion BCBS share (20% in our sample), and roughly zero when pre-conversion share fell below the mean. Consistent with oligopolistic pricing behavior, price changes in markets with high preconversion BCBS share were similar for both BCBS and its rivals. It is possible that quality improvements “warranted” the price increases, but we find this explanation somewhat implausible given the similarity in price changes across all insurers. While converting plans underwent major overhauls during which quality improvements could have been implemented, rivals (in general) did not. One would have to believe that rivals made quality improvements of essentially the same market value as BCBS in all markets, i.e. greater improvements where BCBS was relatively more dominant and smaller improvements where BCBS was smaller. Given the challenges associated with generating and marketing changes in quality, as well as the fact that most rivals to BCBS in our sample are national firms, we conjecture that quality improvements likely did not account for all of the observed price increases following conversions. [...]

    [T]he findings have several implications for regulatory and competition policy vis-à-vis insurers. First, it appears that sizeable FP insurers are more likely to exercise market power via price increases than are comparable NFP [not-for-profit] insurers. Second, pricing actions by dominant insurers have a ripple effect on rivals’ prices, further solidifying the evidence pointing towards oligopolistic conduct in many local insurance markets. Third, there is no evidence that NFP and FP insurers charge different prices in the large group market when both are relatively small. These findings suggest that subsidies for de novo NFP insurers (such as those included in the Affordable Care Act) are likeliest to generate value if they facilitate the creation of relatively large players.

    Here are two prior posts on for- vs not-for-profit hospitals and nursing homes.

    * UPDATE:

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  • JAMA Forum: Obamacare’s failure to fulfill its moral ambition

    A health policy goal among some on the left is universal coverage. On the right, the emphasis is often affordable coverage, even if it’s only for some (like those with continuous coverage). The center, in my view, is universal access to affordable coverage. And that just happens to be the best characterization of the main ambition of Obamacare.

    Can we justify this ambition with more than its claim to the political center? I think we can. In a new post on the JAMA Forum I articulate a moral argument for universal access to affordable health insurance, borrowing from the work of Daniels, Saloner, and Gelpi and Saloner and Daniels. The starting point is an assertion that we have a moral obligation to protect opportunity, access to health care being one necessary condition for it.

    Access to health care is enhanced by health insurance. As Daniels, Saloner, and Gelpi argue, universal health insurance is a means to this end. But it’s not the only way. The key is to recognize that equality of access is not equality of receipt. The authors are not suggesting that we have a moral obligation to ensure that everyone receive the same amount of health care, merely that everyone have the same degree of access to it.

    This more modest obligation would be met in a system that does not cover everyone but extends equal opportunity of access to affordable coverage to everyone. That is, equal opportunity to obtain coverage is a necessary condition for equal access to health care, though some may choose not to avail themselves of that care or that coverage. Put another way, if we are morally satisfied with a regime under which people can choose whether to receive care, we ought to be morally satisfied with one under which people can choose whether to obtain coverage for it, so long as there is equal opportunity of access to that coverage and the care it facilitates.

    So much for a moral justification of the law’s ambition, what about its actual implementation? Here it fails; universal access to affordable coverage has not been obtained and is not expected to be under the law. Millions of poor residents in states not expanding Medicaid lack it. And, as Jed Graham of Investor’s Business Daily recently reported, some families covered by exchange plans could face out-of-pocket costs as high as 40%. One can hardly call that affordable.

    Obamacare’s ambition may have a reasonable, moral foundation, but it has not fulfilled it. I wrap up the post with some suggestions on how to better align policy with what morality demands of it. Go read the whole thing.

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  • Maybe it’s the guns

    Lyrics of “If it were up to me,” by Cheryl Wheeler:

    Maybe it’s the movies, maybe it’s the books
    Maybe it’s the bullets, maybe it’s the real crooks
    Maybe it’s the drugs, maybe it’s the parents
    Maybe it’s the colors everybody’s wearin
    Maybe it’s the President, maybe it’s the last one
    Maybe it’s the one before that, what he done
    Maybe it’s the high schools, maybe it’s the teachers
    Maybe it’s the tattooed children in the bleachers
    Maybe it’s the Bible, maybe it’s the lack
    Maybe it’s the music, maybe it’s the crack
    Maybe it’s the hairdos, maybe it’s the TV
    Maybe it’s the cigarettes, maybe it’s the family
    Maybe it’s the fast food, maybe it’s the news
    Maybe it’s divorce, maybe it’s abuse
    Maybe it’s the lawyers, maybe it’s the prisons
    Maybe it’s the Senators, maybe it’s the system
    Maybe it’s the fathers, maybe it’s the sons
    Maybe it’s the sisters, maybe it’s the moms
    Maybe it’s the radio, maybe it’s road rage
    Maybe El Nino, or UV rays
    Maybe it’s the army, maybe it’s the liquor
    Maybe it’s the papers, maybe the militia
    Maybe it’s the athletes, maybe it’s the ads
    Maybe it’s the sports fans, maybe it’s a fad
    Maybe it’s the magazines, maybe it’s the internet
    Maybe it’s the lottery, maybe it’s the immigrants
    Maybe it’s taxes, big business
    Maybe it’s the KKK and the skinheads
    Maybe it’s the communists, maybe it’s the Catholics
    Maybe it’s the hippies, maybe it’s the addicts
    Maybe it’s the art, maybe it’s the sex
    Maybe it’s the homeless, maybe it’s the banks
    Maybe it’s the clearcut, maybe it’s the ozone
    Maybe it’s the chemicals, maybe it’s the car phones
    Maybe it’s the fertilizer, maybe it’s the nose rings

    Maybe it’s the end, but I know one thing.
    If it were up to me, I’d take away the guns.

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  • The food pyramid’s third dimension

    An excerpt from “Lies I Will Tell My Children“:

    food pyramid 3D

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  • In praise of the NNT

    First read this, adapted from a paper by Cook and Sackett:

    Example 1: Relative to a control group, for patients with mild hypertension, the therapy reduced the absolute risk of stroke over the next five years by 0.006. For patients with moderate hypertension, the therapy reduced it by 0.08. [Assume "mild" and "moderate" hypertension are appropriately defined elsewhere.]

    Next, what’s your knee-jerk response to, “How well does this therapy work?” If you’re anything like me, you’re immediately trying to convert the numbers above into something more intuitive. For example, it’s fairly clear that for moderate hypertensive, the therapy would spare 8 out of 100 patients a stroke in the next five years (because 0.08 = 8%). For mild hypertensives, my quick mental calculation would be that the therapy did so for about 1 out of 200 patients (since 0.006 is close to 0.5%).

    Now we’re getting somewhere. I have a decent, intuitive feel for what 8 out of 100 and 1 out of 200 mean as numbers. But we can do a bit better. Instead of reporting the absolute risk reduction, we could report the number needed to treat (or NNT). Try this:

    Example 2: Relative to a control group, the number needed to treat (NNT) to spare one mild hypertensive patient a stroke over the next five years is 167. The NNT for moderate hypertensives is 13.

    The NNTs 167 and 13 are just the (rounded) reciprocals of the absolute risk reduction 0.006 and 0.08 from the first example above. What they’re telling you is that one individual with mild hypertension out of 167 treated will benefit; one out of 13 moderate hypertensives will. Aren’t they easier to interpret? I think so.

    Put yourself in the place of the patient here. Are you the one who will benefit or not? If you’re a mild hypertensive and you’re the one who benefits, then 166 of your fellow patients are the unlucky ones who don’t. That’s a lot of therapy doing nothing! If you’re a moderate hypertensive and you benefit, 12 of your fellow patients don’t. The odds are much better in this case and less therapy is wasted.

    What I haven’t told you is that the numbers above are from studies that show that the relative risk reduction provided by therapy is the same for both groups, 40%. What absolute risk reduction (Example 1) makes clear, and the NNT (Example 2) does even better, is that the absolute benefit of therapy is very different for the two populations, even though the relative benefit is the same. It’s the absolute benefit that matters.

    If you’re surprised by the NNTs in the example above—perhaps thinking they’re not typical—this is an important moment for you. Though single digit NNTs exist, NNTs in the tens to hundreds (or greater) are very typical in medicine. A ton of stuff gets done without any benefit because we have a hard time focusing treatment on precisely those for whom it will definitely help. I bet you think every time you pop a pill or get a procedure you’re benefiting. Guess what? The chances you’re not are very, very high. Are you the lucky one or not?

    I plan to say more about NNTs later in the summer. For now, just let the idea, and their typical size, sink in. Here are some more resources:

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  • The effect of Medicaid on educational attainment

    From The Effect of Child Health Insurance Access on Schooling: Evidence from Public Insurance Expansions, by Sarah Cohodes, Samuel Kleiner, Michael Lovenheim, and Daniel Grossman (NBER, 2014):

    The effect of Medicaid expansions on access to healthcare and on subsequent child health has been studied extensively, (e.g., Currie and Gruber, 1996a, 1996b; Moss and Carver, 1998; Baldwin et al., 1998; Cutler and Gruber, 1996, LoSasso and Buchmueller, 2004; Gruber and Simon, 2008), typically showing that Medicaid expansions increase healthcare access, decrease infant mortality, and improve childhood health. Furthermore, these expansions and Medicaid access more generally have been linked to a lower likelihood of bankruptcy and to less medical debt (Gross and Notowidigdo, 2011; Finkelstein et al., 2012). If Medicaid leads to better health outcomes among children and to more stable finances among low-income households, as suggested by prior research, Medicaid expansions could lead to long-run benefits for affected children.

    But the effect of Medicaid expansion for children on their educational attainment has not been studied, until this paper.

    We find consistent evidence that Medicaid exposure when young increases later educational attainment. A 10 percentage point increase in average Medicaid eligibility between the ages of 0-17 decreases the high school dropout rate by 0.5 of a percentage point, increases college enrollment by between 0.7 of a percentage point and 1.0 percentage point, and increases the four-year college attainment rate (i.e., BA receipt) by 0.9-1.0 percentage point. These estimates translate into declines in high school non-completion of about 5%, increases in college attendance of between 1.0% and 1.5% and increases in BA attainment of about 3.3%-3.7% relative to the sample means.

    Go read Adrianna for more on this study.

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  • AcademyHealth: What’s trending at the ARM?

    This weekend through the middle of next week I’ll be at the AcademyHealth Annual Research Meeting (ARM). I imagine many readers of this blog will be as well. Like me, you’re probably beginning to look at the agenda. Perhaps you’re wondering how its themes have changed over time, and how that evolution relates to policy initiatives. (OK, maybe the question hadn’t occurred to you, but now you’re interested, right?!) Then check out my latest post on the AcademyHealth blog.

    (Also, please say hi at the conference.)

    @afrakt

     

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  • Last day for discount pricing of *Microeconomics Made Simple*

    A quick update/reminder: today is the last day to buy a Kindle copy of Microeconomics Made Simple, for just $0.99.

    Also, if you’d like to tell any friends about the book (e.g., via forums, Facebook, or Twitter), consider doing so today so that others get the lower price as well. Mike and I appreciate it!

    More about the book here, with links to excerpts.

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  • AcademyHealth: What to do about America’s growing opiate dependence?

    Long understood by some clinicians and policymakers, there is growing awareness of America’s opiate use crisis, and renewed efforts to do something about it. Get up to speed about the problem and solutions by reading my latest on the AcademyHealth blog.

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  • How to learn basic microeconomics in a few hours (read my book)

    micro made simple

    My book on basic microeconomics, coauthored by Mike Piper, is out. It’s called Microeconomics Made Simple and, as the title suggests, it’s a gentle introduction to the basics. At just 100 pages, it’s a quick read.

    I want you to buy it, to read it, to love it, and to tell your friends, family members, and social media followers about it.

    Here are some possible reasons why you might be interested in the book:

    • You never learned microeconomics and yearn for a basic intro that won’t take much time or make your brain hurt
    • You learned microeconomics, but so long ago you’re rusty and want to brush up
    • You’re a student, with a microeconomics course in your future and you want to get a jump on the basic concepts
    • You’re taking a microeconomics course right now, but it’s going too fast for you and you want a simple way to review the fundamentals
    • You will be or are taking some other social science or business course for which a basic understanding of microeconomics would be helpful, even if it’s not required
    • You find yourself puzzled by some discussions of markets or profits or opportunity cost or other microeconomic concepts and want a way to get up to speed
    • You teach microeconomics or some other social science or business course and you think some or all of your students could benefit from access to a gentle introduction to microeconomics
    • You want a quick way to understand the limitations of economics (yeah, we cover that too)

    For a limited time, the Kindle price will be discounted from $4.99 to $0.99. You can buy the book at Amazon.com. Below are some additional details, including a table of contents and links to excerpts.

    Summary

    Part One, explains the most fundamental concepts of microeconomics, such as utility, supply, demand, market equilibrium, and some ways in which governments intervene in markets.

    Part Two focuses on the degree of competition in different types of markets, as well as the outcomes of competition. Market structures considered include: perfect competition, monopolies, oligopolies, and monopolistic competition.

    The Authors

    My coauthor, Mike Piper, is a certified public accountant and an expert at distilling complex topics into simple language and examples. This is his eighth book that does so (others here) and his blog on personal finance is excellent. As you know, I’m a health economist and, as such, have devoted a great deal of my professional life thinking about microeconomic concepts. We teamed up to explain all the microeconomics we could in 100 pages.

    Special thanks go to Wade Pfau and Julian Jamison for contributing their time and expertise for technical editing.

    Excerpts

    Click on the following links for excerpts. Note that each is out of context. The book assumes no prior knowledge of economics so, in the context of the book, each excerpt is fully accessible to a non-expert.

    Errata

    Please bring errors in the book to our attention. As we find and fix them, we’ll post the details here.

    Table of Contents

    Introduction:

    What Is Economics?

    Macroeconomics vs. Microeconomics

    Not a Perfect Model

    Part One: Basic Economic Concepts

    1. Maximizing Utility

    What about Charity?

    Decreasing Marginal Utility

    Opportunity Cost

    2. Evaluating Production Possibilities

    Production Possibilities Frontier

    Absolute Advantage and Comparative Advantage

    3. Demand

    Elasticity of Demand

    Change in Demand vs. Change in Quantity Demanded

    4. Supply

    How Costs of Production Affect Supply

    Elasticity of Supply

    Change in Supply vs. Change in Quantity Supplied

    5. Market Equilibrium

    How Market Equilibrium Is Reached

    The Effect of Changes in Supply and Demand

    6. Government Intervention

    Price Floors and Price Ceilings

    Taxes and Subsidies

    Part Two: Firm Behavior in Different Types of Markets

    7. Costs of Production

    Marginal Cost of Production

    Fixed vs. Variable Costs

    Short Run vs. Long Run

    Sunk Costs Are Irrelevant

    Economic Costs vs. Accounting Costs

    Average Total Costs

    8. Perfect Competition

    Firms Are Price Takers

    Making Decisions at the Margin

    Calculating Profit or Loss

    Zero Economic Profits in the Long Run

    Firms Producing at Their Lowest Cost

    Producing at a Loss in the Short Run

    Consumer and Producer Surplus

    9. Monopoly

    Monopolies Have Market Power

    Marginal Revenue Curve for a Monopoly

    Maximizing Profit (Producing at MC = MR)

    Profits and Losses for Monopolies

    Monopolies: Producing at a Higher Cost

    Loss of Surplus with a Monopoly

    Monopolies and Government

    10. Oligopoly

    Firms Are Not Price Takers

    Collusion in an Oligopoly

    Cheating the Cartel

    Government Intervention in Oligopolies

    11. Monopolistic Competition

    Making Decisions at the Margin

    No Profits in the Long Run

    Firms Do Not Produce at Lowest Cost

    Loss of Surplus with Monopolistic Competition

    Conclusion: The Insights and Limitations of Economics

    Appendix A: Helpful Resources

    Appendix B: Glossary

    Acknowledgments

    Other Books in the Series

    Buy Microeconomics Made Simple.

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