• Is the tax exclusion for employer-sponsored insurance regressive?

    If you were to ask 100 randomly-selected health wonks, probably 92 would say that the tax exclusion for employer-sponsored insurance is bad policy. This is one of those issues on which liberal and conservative health economists agree. Liberal and conservative politicians agree with each other, too, though not in the way hoped for by economists. Policies to limit ESI tax exclusion seem politically radioactive, as indicated by the savage reception to candidate John McCain’s 2008 health proposals, and as indicated by the delayed implementation of the “Cadillac tax” on high-value employer plans enacted under ACA.

    Politics aside, most experts would argue that the tax exclusion is regressive, that it subsidizes over-insurance for highly-compensated people, and that such hidden subsidies make health care costs further opaque, and therefore undermine cost-control policies. TIE’s own Austin Frakt observes that many of us receive greater tax subsidies from the ESI exclusion than is provided to the typical Medicaid recipient. My own taxes would be about $7,000 higher if I were fully taxed on my generous insurance plan. This massive tax subsidy to a tenured professor seems hard to justify on either equity or efficiency grounds.

    Joseph White of Case Western challenges the conventional policy-wonk wisdom in a recent essay in the Journal of Health Politics, Policy, and Law: The Tax Exclusion for Employer-Sponsored Insurance Is Not Regressive—But What Is It?

    White makes several seemingly-obvious but generally-overlooked points. Although the dollar value of the tax exclusion is higher for high-income people who pay higher marginal tax rates, health insurance comprises a much higher percentage of income for low-wage workers. This is particularly so given the mundane reality that health benefits are provided in more egalitarian fashion across (full-time) workers than dollar-wages and salaries are. (My own employer, like Professor White’s, actually charges lower premiums to less-compensated employees.) So the tax exclusion is one mechanism to transfer resources, albeit imperfectly towards people with families and others in greater need of health services.  If we believe that age discrimination is a significant problem in the American economy, tax subsidies for older workers aren’t the worst thing, either.

    One strand of White’s argument becomes obvious with a simple example. Suppose GE provides $10,000 coverage to an executive earning $300,000 annually, and a mid-level worker who earns only $40,000. It’s quite possible that the ESI exclusion is worth $3800 to the executive and only $1500 to her less affluent counterpart. Does this mean that the exclusion is regressive? It’s not so obvious. After all, $1500 is a much larger proportion of $40,000 (3.75%) than $3800 is of $300,000 (1.27%).

    For historical reasons, the United States has followed the problematic path of employer-sponsored health coverage for most employed citizens. It’s hard to imagine that we would institute this package of policies—including the ESI exclusion—if we could truly start anew. But we’re not starting anew. As Paul Starr and others rightly noted, providing health coverage through large employers brought genuine advantages along the way: Providing administrative economies and a reasonable internal risk-pool, providing some implicit redistribution to lower-wage workers, too. The challenges facing ACA’s federal and state marketplaces underscore the political and operational difficulties of standing-up viable alternatives to ESI, which would necessarily involve substantial government regulations and subsidies.

    I’m not fully sold by White’s argument. Surely there is some way to limit excessive tax expenditures to families like my own. We don’t need the subsidy for these extremely generous plans. And it does bother me that the huge tax subsidy is so hidden, allowing prosperous employed workers to believe that other people—certainly not we ourselves—are beneficiaries of the American social welfare state.

    Without a doubt, though, the economic and policy issues are less clear-cut than my standard economics lectures present. Everything in health policy is so darned complicated and path-dependent.

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  • The American Medical Association to Congress on ACA: First, do no harm. And let’s see the detailed “replace” plan before any “repeal.”

    Something important happened yesterday. The AMA released a letter to congressional leaders on Tuesday that is a big deal.

    First, the AMA calls on Congress to preserve coverage for the twenty million Americans who became insured through the Affordable Care Act. The letter reminds Congress that the AMA supported ACA’s passage “because it was a significant improvement on the status quo at that time,” adding: “It is essential that gains in the number of Americans with health insurance coverage be maintained.” Do no harm.

    Most important, the AMA calls upon Congress to release a properly detailed “replace” plan before ACA is repealed:

    [W]e believe that before any action is taken through reconciliation or other means that would potentially alter coverage, policymakers should lay out for the American people, in reasonable detail, what will replace current policies. Patients and other stakeholders should be able to clearly compare current policy to new proposals so they can make informed decisions about whether it represents a step forward in the ongoing process of health reform.

    This is a big deal. The current Republican strategy is to quickly pass a $346 billion tax cut for people with annual incomes exceeding $200,000, alongside the nameplate ACA repeal. They would offer unspecified promises of a later replacement.

    There’s good reason for the vagueness. Republicans have reached no genuine consensus on a detailed replacement plan. When they do reach consensus, and provide the AMA’s requested detail, their plan will likely be scored by nonpartisan authorities such as the Congressional Budget Office as exploding the deficit and leaving millions more Americans uninsured relative to current law. Republican plans may also include deep cuts to Medicaid for aged and disabled Americans that go well beyond even ACA repeal.

    Although liberals aren’t overjoyed by this, the AMA retains unique authority in American life. A large body of research–notably important work by Alan Gerber and Eric Patashnik–indicates that most Americans regard the AMA as representing America’s doctors–and that doctors are the uniquely respected authority on matters of health policy and medical care.

    The AMA is not particularly close to the Democratic Party. It is not coded in public opinion as some liberal Democratic advocacy group, either. Indeed the AMA supports President-elect Trump’s nomination of Tom Price, an arch-conservative figure despised by most Democrats.

    If the AMA is telling Republicans to slow down, this is an important development.


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  • The politicization of everything after health reform

    Yesterday, the Washington Examiner’s health policy wonk Philip Klein posted a column titled “One of Obama’s big ideas for reforming health care failed a test in California.“ Klein opens by quoting a 2009 speech by President Obama:

     “We need to bundle payments so you aren’t paid for every single treatment you offer a patient with a chronic condition like diabetes, but instead paid well for how you treat the overall disease,” Obama told the crowd of physicians.

    Obama was articulating what would become one of the key payment reforms in his health care law — a proposal aimed at giving incentives to providers to control costs by rewarding them for providing less expensive care.

    But a study published in the journal Health Affairs looked at an ambitious three-year pilot program of bundled payments in California that was funded by a $2.9 million grant from Obama’s 2009 economic stimulus package — and found that the program was such a massive failure, it could hardly get off the ground.

    Klein is a very good reporter. He is right to direct attention to the failure of this particular program to implement bundled payment for orthopedic procedures. This is especially disappointing given the need to reduce volume and cost in this high-margin area of care.  It’s probably a mistake to extrapolate from this one failure to other bundled payment efforts,  a variety of which are underway. Some are going well. Others are not.

    Whatever the case with this specific pilot effort, Klein’s headline illustrates the depressing evolution of health politics and policy in the ObamaCare era.

    ACA rightly sparked an ideological fight. It expands government regulating insurance markets, and transfers nearly $200 billion per year down the income scale to expand coverage to tens of millions of people. These provisions make ACA one of the most politically liberal measures in recent American history.

    Alongside these inherently divisive provisions were hundreds of pages that might be called the junk DNA of health reform. Given the imperative to improve quality and to control costs, ACA includes a myriad of provisions that support pretty much every cost-containment idea proposed by health policy experts over the past thirty years: Accountable care organizations, a market-based competitive model of the new exchanges, funds for comparative effectiveness research to scrutinize care models and therapies, improved care coordination efforts for the most complex patients, funding for a new innovations center to evaluate and expand novel approaches to care, value-based insurance design, and more.

    If no one had ever heard of ObamaCare, many of these same provisions would be in-play. Talk with any hospital executive, insurer, employer, public official, or almost everyone else within our $2.9 trillion medical care political economy. This person will tell you that American medical care is changing. Traditional fee-for-service medicine is too fragmented, provides too many incentives for costly or ineffective care.

    Whatever happens to the politics of health care, medical providers will be increasingly compensated for care episodes based on outcomes and process quality measures. Moving in this direction will be unbelievably complicated and messy, with many missteps along the way. That’s why pilots of the sort Klein describes are so important, and why so many will fall short or prove unworkable.

    These efforts should not, themselves, be identified with any particular ideology or political party. Many such efforts will surely be included in proposed Republican alternatives to the Affordable Care Act.

    Bundled payment is a genuine big idea, but President Obama enjoys little pride of ownership. It’s been around for decades, and it’s no more central to ACA than it will be in any proposed Republican alteration to the health reform law. Medicare hospital reimbursement is, in part, a bundled payment system.

    In 2008, the nonpartisan Medicare Payment Advisory Commission (MedPAC) recommended “a path to bundled payment.” Such proposals occasioned intense conversation among health policy experts and affected constituencies. But this was inside baseball, not an ideological or partisan matter. The Bush administration proposed various bundled payment approaches, for example in kidney dialysis.

    Within a sane political world, the fate of such efforts would have little to do with ideological fights over near-universal coverage or Medicaid expansion. Yet here we are. A successful bundled-payment pilot would represent a political victory for the president. Its corresponding failure would represent a political defeat for ObamaCare. This is not a good development for the enterprise of health of health services research.

    Perhaps health policy would be less polarized had ACA simply expanded coverage by raising taxes without attempting broad delivery reforms in the same bill. Then the straight-up ideological and redistributive battle could have been fought without damaging every other component of health policy with the predictable fallout.

    I’m not sure such a separation would have been fiscally prudent or politically possible. It might, however, have avoided the place we inhabit right now, in which so many promising delivery reforms are tinged by their association with President Obama’s signature domestic policy achievement.


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  • Why Obamacare’s Troubled Rollout Might Force the Cooperation Health Reform Needs

    The following is a cross-post of my piece that appeared in The Nation earlier today.

    We’re six weeks into the implementation one of the key provisions of the Affordable Care Act, the rollout of the healthcare marketplaces. It’s been a tough month, dominated by failures of rather astonishing proportions. But sooner or later, Healthcare.gov will work, and Republican governors will grasp that bipartisan cooperation with the Obama administration is in their best interest.

    First, let’s acknowledge the failures. The most obvious occurred within the Obama administration itself, whose Department of Health and Human Services botched the launch of the online marketplace. For those of us who worked so hard over many years to secure passage of health reform, this was humiliating. We argued for years that the individual and small-group insurance market required greater transparency, along with closer regulation by competent, activist federal government.  The ACA was a strong step in that direction, but no one expected completely smooth sailing in the implementation of a vastly complex new law. Plus, the Obama administration faced implacable opposition from Republicans at both the state and the federal level. The HHS bureaucracy labored under incredible pressure due to congressional efforts to defund ACA. The Supreme Court damaged and delayed ACA’s implementation, too—first through a ponderous legal process, then through its surprising and misguided decision that effectively allowed states to refuse ACA’s Medicaid expansion. Almost everyone expected the rollout to include some embarrassing glitches. But few people expected the deep bureaucratic failure that actually occurred.

    ACA supporters draw different lessons from this experience. Technocratic centrists seek organizational strategies to make government IT management and procurement better-emulate its innovative counterparts in the private sector. Those further left note that universal social insurance is more straightforward to explain and to actually implement. These critiques do not conflict. Both have considerable validity. Both deserve greater attention in the design of future social policies.

    Last month’s performance failure hurts on a personal level, too. Many of us who fought for ACA are trying to help friends, patients, clients, and loved-ones sign up for coverage. We know many people who desperately need help, yet who remain confused or suspicious about whether they would get help under the new law. We finally had our chance to demonstrate that help was finally coming. But instead of being a moment of pride, October 1 was a moment of great confusion, embarrassment, and disappointment.

    I remain proud of ACA, proud of President Obama for securing its passage. The past month hasn’t changed that. My friends and colleagues in that effort feel the same. Yet I sense a new weariness and uncertainty. Unlike other low-points of the Obama presidency such as his loss of the first 2012 debate, the rollout of Healthcare.gov represented a substantive governance failure rather than a partisan setback. This really hurt.

    Then there was the line: “If you have insurance, you can keep it,” Obama’s promise that existing insurance policies wouldn’t change. Policy wonks always understood that this was roughly correct, but oversimplified. We failed to prepare the public for a more complicated reality, in which insurers would drop low-cost—often but not always—junk plans. Yes, most consumers are getting better plans. But some people are paying more. The President’s promise has come back to haunt him. He was right to apologize.

    The administration and its supporters made some serious errors. Yet they didn’t commit the only or the most epic failures here. News media are also making sowing public confusion. Major outlets repeatedly misreported stories of coverage cancellations within the individual and small-group marketplace. A series of stories described the predicament of specific people whose insurance was apparently cancelled, and who now apparently face massive premium increases because of health care reform. Anecdata always has the potential to mislead. Consumers with individual or small-group policies that have been cancelled are a tiny proportion of the insured, and are also a small proportion of those most affected by health reform. Many of the cancelled plans were incredibly limited, and would not have protected people from financial ruin in the event of serious injury or illness. Many people whose coverage was cancelled are eligible for subsidies on the new health insurance exchanges or are now eligible for Medicaid. Some are young adults who can enroll on a parent’s group plan.

    A striking proportion of supposed ACA horror stories fall apart entirely when subjected to scrutiny. A particularly egregious example: On October 11, Sean Hannity featured featured six ostensible victims of Obamacare. Each of the six stories proved fell apart upon straightforward fact-checking conducted by Salon’s Eric Stern. To my knowledge, Hannity has run no correction.

    Such errors are unsurprising given Hannity’s strident conservatism, but as the American Prospect’s Paul Waldman and others noted, similar examples—soon disproven—have regularly appeared in less ideologically-charged outlets. CNBC’s Maria Bartiromo called the predicament of Deborah Cavallaro, a 60-year-old California real estate agent whose insurance plan was cancelled, another Obamacare horror story. Then Los Angeles Times columnist Michael Hiltzik did something Bartiromo hadn’t bothered to do. He examined Cavallaro’s previous skimpy plan. He then poked around California’s new insurance exchange. It turns out that Cavallaro can choose several better and cheaper alternatives to her old plan.

    Consumer Reports’ Nancy Metcalf and the New Republic’s Jonathan Cohn performed a similar exercise regarding another ostensible poster-child of the evils of health reform: Florida realtor Dianne Barrette. Barrette was featured on CBS and FOX News. Blue Cross Blue Shield of Florida cancelled Barrette’s $54-a-month plan, offering to replace it with something with that costs ten times as much. That sounded bad, unless one took into account that her original policy covered virtually no services. “She’s paying $650 a year to be uninsured,” researcher Karen Pollitz told Consumer Reports. “She would have lost the house she’s sitting in if something serious had happened. I don’t know if she knows that.” Barrette can actually obtain decent insurance on Florida’s exchange at a monthly premium of about $165. When the New Republic’s Cohn went through reasonable options with her, Barrette responded, “I would jump at it. With my age, things can happen. I don’t want to have bills that could make me bankrupt. I don’t want to lose my house.”

    When Obamacare horror stories are debunked–as they repeatedly have been—the corrections generally appear in more wonky outlets with smaller audiences. Meanwhile, the anecdotes keep appearing in mainstream media outlets. These accumulate to reinforce a compelling but false fiasco narrative of health reform.

    To do better, reporters need to do two things: a) examine the consumer’s old policy to see what was actually covered, and b) compare these old policies to what is now available to the consumer through Medicaid or the new exchanges. Reporters’ failure to do these two simple things obscures a basic reality. Available coverage on state marketplaces is actually pretty good. It’s also cheaper than experts predicted when health reform was passed.

    Meanwhile, the biggest failure of health reform remains rather hidden in plain sight. More than five million low-income Americans who remain uninsured because their Republican governors refused to implement the Medicaid expansion. Because this wasn’t a surprise to anyone, this scandalous situation is getting far less attention than it deserves.

    Fortunately, there are some silver linings.

    The first reflects cyclical realities of the media. Healthcare.gov isn’t the humiliating mess it was at its launch. It will work. Eventually, reporters will notice. Ordinary Americans will, too.

    Secondly, more and more Americans will directly observe what many new Medicaid recipients and participants in state exchanges have already seen: Health reform is offering real coverage that will improve people’s lives.

    The final silver lining will be harder to accept for committed activists on both sides of health reform. Many readers might not see this as a silver lining at all. But hear me out. The Obama administration has been chastened by its poor rollout performance. It needs practical and political help from Republicans—not from Republicans in Washington, who have little incentive to collaborate, but from Republican state office-holders who have actual responsibilities to govern who will eventually own their state’s version of health reform.

    And Republicans around the country have been chastened by the Tea Party’s politically radioactive decisions to seek concessions over the debt ceiling and to shut down the government. States face powerful incentives to embrace the Medicaid expansion, which is so valuable to both consumers and providers of healthcare. In states such as Ohio, Arizona, and Pennsylvania, all of which have Republican governors, we can already see the beginnings of a bipartisan negotiation.

    Liberals like me may be disappointed by compromises the White House is likely to make to provide GOP governors with a dignified path to accept Medicaid expansion. Some states wish to impose (modest) co-pays for non-generic drugs or for emergency department use. Others ostensibly maintain the right to opt-out of the Medicaid expansion if the federal government lowers its matching rates. Republican governors require such concessions. After all, they have spent the past five years bitterly opposing health reform. Maybe HHS will follow the Arkansas compromise and allow more poor people into exchanges rather than Medicaid in states that request that option.

    The administration always seemed willing to negotiate on medical malpractice, too. This proved to be a moot point in 2009 and 2010, as Republicans preferred to trumpet this issue politically rather than to negotiate any deal. But perhaps we have another chance for movement.

    We may also be wise to revisit just how minimal the most minimal insurance packages should be. In 2011, an Institute of Medicine committee was asked to clarify what the “essential health benefits” under the new law. The IOM recommended a package based on what the typical small business would cover, and noted the importance of such restraint to keep premiums low. It was a much more limited plan than many advocates support, and the committee was sharply criticized. But this month’s backlash underscores the wisdom of the IOM’s approach. I don’t know yet what can be done without compromising public health components such as substance abuse and mental health coverage, but these matters deserve a real look.

    For liberals, these may be painful concessions. Yet this isn’t November 2008, when Democrats could plausibly look forward to imposing their legislative will. Democrats need Republican buy-in for health reform to secure public legitimacy and to help millions of needy people. Democrats also need the administrative capacity of state governments, willingly deployed, to make health reform actually work.

    Meanwhile, conservatives across the country will be equally disappointed by the compromises GOP governors must make. Some states could see more than one-third of the adult population on Medicaid. This is a huge, essentially irreversible increase in the role of government. Republicans must realize that this isn’t November 2010, when they might plausibly have overturned ACA in Congress or in the courts. That moment has passed too. Health reform is a reality. Too many individuals and constituencies are benefitting for this thing to be overturned. Meanwhile, poor people need coverage. Hospitals, city and county governments, and so many other stakeholders need federal dollars in the cash register. If Medicaid’s history in the 1960s and 1970s is any guide, Medicaid expansion will happen. Once a state opts-in, as Virginia presumably will do under governor-elect Terry McAuliffe, there’s no going back.

    The politics of enacting landmark health reform required a unique moment of Democratic dominance. The realities of implementation require something less exhilarating but more methodical. The process is messy. No will.i.am video will be made about this task, but it’s important: Cementing the change we need.


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  • Goin’ on Sabbatical

    A bit of bookkeeping.

    I’m proud to contribute to TIE–no issues or complaints of any kind. But to be a baller here, you’ve really got to bring your “A” game.  The rest of my life isn’t positioning me to consistently do that at the Austin/Aaron/Adrianna/Bill/Kevin/et al level that TIE readers deserve. So I’m taking a sabbatical.

    Like many academics on sabbatical, I may drop in on the occasional meeting to offer unsolicited advice.  You’ll still see me on the internets in various ways, mainly to further my book project and my efforts to show human faces affected by disability and health policy. Austin and I have some TIE-U ideas for my teaching, too.

    My TIE colleagues have assembled one of the best health policy sites around.  So stay tuned.  I certainly will.


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  • NICUs cost how many thousands per day? And parents need charities for parking?

    Yeah, I know. The government is set to shut down on Tuesday—by non-coincidence the very day health insurance exchanges open for business for ObamaCare. And I’m about to talk about hospital parking?

    Bear with me. This is actually an important issue: The incredible way our health system so terribly disserves families caring for loved-ones with serious illnesses.

    Today’s Chicago Tribune includes a front-page feel-good story about a new charity’s efforts to making parking free for families with babies receiving neonatal intensive care. The Tribune story notes: “Foundation will cover garage or mass transit costs for parents of critically ill infants.” It begins with a poignant description:

    Wide-eyed Brody Rubenstein, connected to tubes and swaddled in a striped hospital blanket, was born 19 days ago with a hole in his diaphragm and many of his tiny organs pushed upward into his chest.

    His parents, Neil and Amy, have spent nearly every day at his side, and added to their many worries is this: the cost of parking their car across the street from Lurie Children’s Hospital of Chicago. They’ve already spent about $250.

    But starting Monday, the cost of parking will no longer be a concern. The Rubensteins and other families with babies in the neonatal intensive care unit will be handed passes for parking or public transportation that will allow them to come and go for free.

    The Jackson Chance Foundation is stepping in to help. This worthy organization has raised $200,000 to help NICU families with free parking and transit passes. It’s a terrific cause. Yet it’s revealing and pathetic that such efforts are even needed.

    The average daily cost of NICU care in the United States exceeds $3,000. I’m going to go out on a limb and guess that Lurie Children’s hospital –one of the nation’s most prestigious—charges even more. The Tribune reports that the average length of stay in Lurie’s NICU is 27 days. So average expenditures are nearing $100,000. If these infants need MRI scans, intricate procedures and tests, they will get these costly services. NICUs are wonderful places. Showpieces of modern medicine, these are responsible for a marked reduction of infant mortality.

    And herein lays the irony. Alongside these medical miracles, we struggle to find $20 per day so families going through incredible difficulties have a place to park. And that’s only parking.

    I’ve worked with Ronald McDonald House, which happens to have outstanding facilities in Chicago serving Lurie Children’s, the University of Chicago, and other area hospitals. RMHC does a great service for families of critically-ill infants and children. These families often come a long way for specialty care. Families need a place to stay, somewhere to eat so they aren’t spending surprising amounts of money in the hospital cafeteria. They need a place for sanity and sleep when a child has cancer, cardiac problems, or other serious illnesses. RMHC facilities do a great job, though the need is greater than they can fully address.

    Notice something else, too. Charities such as Jackson Chance Foundation and RMHC are worthy ventures for families of cute and cuddly kids. But what about the hundreds of thousands of adults with cancer or serious cardiac disease? What about their families?

    As I’ve noted here, my father was recently sick with a scary cancer. We spent thousands of dollars on hotel rooms, food, laundry, transportation, and more, as we managed the logistics of being there as a family to help with his care. He got excellent and humane care, and these expenses were not a serious hardship for us. They certainly would have been for many other Americans.

    Our health care system—particularly our leading academic medical centers—often do a great job providing expensive, high-tech medicine. These same institutions and the wider health care and social service system do a horrible job addressing the economic, logistical, and other life challenges that predictably confront patients and their families given the practical realities of serious illness. (I’m not even considering even more challenging situations, such as indigent patients with HIV or other ailments who require costly emergency department visits and costly nursing home services made worse by their lack of much-less-costly secure housing.)

    I’m glad that families such as the Rubensteins can get free parking. It’s pathetic that they even need to ask. It’s a depressing commentary that this obvious bit of humanity merits a newspaper headline.


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  • Finally, it’s put-up or shut-up time for health reform

    I’ve been on the road, reading various depressing polemics on potential “rate shock” facing young adults who are now uninsured or buying coverage on the non-group market. If the typical newspaper reader understood that less than 14% of adults age 21-27 in this group would actually face the full unsubsidized cost of coverage in the new exchanges, we could waste less of our time on an absurdly-framed debate. I was all set to write yet another column by a liberal policy-wonk excoriating Avik Roy for his columns trying to establish that a relatively cherry-picked subgroup of healthy, relatively-affluent young adults will get hammered by health reform.

    Then I just stopped.

    We’re just past the point of partisan thrust and parry. Young adults will explore their options. Either they will have a positive experience with the new health insurance exchanges, or they won’t. Fifty-year-olds and 62-year-olds with diabetes will do the same. On the whole, I believe people will have positive experiences. Premiums on the new exchanges are reasonable, coming in below CBO expectations, and certainly below critics’ worst predictions.

    I suspect  the worst backlash won’t actually come from uninsured or under-insured people who actually buy coverage on the new exchanges. Backlash will come from people with pretty crummy jobs who hear that their hours are cut back. Backlash will come from people with limited employer-based coverage who face higher premiums or encounter other changes such as disliked wellness provisions. Some will look across the fence at decent plans on the new exchanges, only to discover that they can’t receive subsidies if they spurn their employer’s coverage.

    Thousands of employers will blame “ObamaCare” for whatever unpopular moves they impose their workers. It’s the obvious play. In many cases, this blame will be mostly or entirely misplaced. Other times, the blame will be justified, reflecting glitches or unintended consequences of the new law. Either way, many workers will believe what their employers tell them. Millions of workers with relatively modest incomes will see their lives getting a little worse when they were hoping that health reform would make their lives a little better.  Other people—I suspect many more—will see their lives getting a little or a lot better. Some of the most deserving people will seek benefits and medical care–only to  discover that no help is forthcoming because their states rejected Medicaid expansion. Republicans had better hope that this is a disorganized and politically marginal group.

    At long last, we’re nearing put-up or shut-up time for the new law. ACA’s political fortunes will rest on whether it tangibly improves peoples’ lives. If it does that, the politics will take care of itself. If it doesn’t, Republicans won’t need Avik’s columns or anyone else’s to knock it down.


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  • Breaking: Many cancer patients are old, and are sick with other things too

    This year, about 1.6 million Americans will be newly diagnosed with cancer. By 2030, cancer incidence will rise to about 2.3 million. The United States spends about $125 billion on cancer care. That’s only five or six percent of the nation’s health care bill. It’s still an impressive amount of money, talent, and medical resources. In some ways, cancer care displays the absolute best American medicine has to offer. Breakthrough medications such as Gleevac have extended and improved many lives.

    As I’ve mentioned here, my dad received excellent and caring treatment for a frightening kidney cancer through Brigham and Women’s Hospital and the Dana-Farber Cancer Institute. Whenever I’m having a bad day, I re-read the words: “Your father appears to be free of cancer.” He’s again thriving at age 84, sending me emails I can’t answer about quantum mechanics or how to program my Apple TV.

    Hundreds of thousands of patients have much worse experiences. Many patients have sadder medical outcomes, of course. It’s more than that. Whatever the prognosis, many receive fragmented, financially-burdensome, confusing, or insensitive care that fails to meet their basic needs.

    Two weeks ago, the Institute of Medicine released a new tome: Delivering high-quality cancer care: charting a new course for a system in crisis. The IOM devoted many pages to one issue that is surprisingly obvious, yet remains unaddressed: The current mismatch between the way cancer care is typically organized and the reality that most cancer patients are older people who are often sick with other conditions.

    Ironically, the same challenges that make geriatric care so necessary also lead older adults to be systematically under-represented in trials of new cancer treatments and drugs. Anyone who has designed a clinical trial or conducted health services research can imagine some of the reasons why. Researchers who conduct clinical trials seek to identify and to demonstrate clear patient benefit—benefit that is almost always defined in terms of patient survival.

    Testing a new drug to see if it helps patients live longer, intervention researchers have obvious reasons to choose relatively homogeneous populations of cancer patients who experience low prevalence of confounding conditions and few competing mortality risks. Researchers have obvious reasons to avoid patients who have serious comorbidities, who have uncertain family supports, who might have cognitive impairments, or who might have adverse reactions to toxic medications. These more-vulnerable patients die sooner. They add random variability and managerial complexity to both the treatment and the control groups, requiring larger sample sizes and more costly study designs.

    In other words, it’s generally easier and cheaper to recruit younger patients. The oncology and gerontology communities have known about this problem for a long time. Yet the problem persists.

    Twenty-four new cancer drugs were approved between 2007 and June 2010. Although most cancer patients and survivors during this period were over age-65, seniors accounted for only about 33% of the patients included in registration trials. Only about ten percent of trial participants (in studies for which pertinent data were readily available) were over the age of 75. Cancer care teams thus lack key information required to make proper care decisions for most of their patients.

    Our cancer care system also does a poor job of coordinating care for older people when cancer is one of many medical challenges requiring careful management, and, sometimes, the right balance of intervention and restraint. Despite excellent technology, pharmaceutical treatments, and surgical interventions, we often fail to treat cancer patients with the transparency, coordination, and humanity everyone deserves.

    Viewed as a system, American cancer care has basic defects. I see in my father’s face the face of someone else who might someday occupy a similar room. As we baby boomers age, we’d better make sure that our nation’s cancer system does better job than it currently does.

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  • Sendhil Mullainathan on the behavioral economics of time and money scarcity–and a bonus joke

    Some of the best methodological and policy research is being performed at the boundary of economics and psychology under the broad label, “behavioral economics.” This line of work is sometimes oversold. Yet the combination of psychological insight with pragmatic rigorous experimentation proves fruitful in many areas of healthcare, social services, and public policy. Nobel Prize winner Daniel Kahneman’s account of this field, Thinking Fast and Slow, is now essential reading in many areas–not least in patient risk communication and in the design of useful consent forms.

    Sendhil Mullainathan and Eldar Shafir are two leading figures in this field. Mullainathan teaches economics at Harvard and is a MacArthur Fellow. Shafir teaches psychology and public policy at Princeton. This week, they released an accessible short book called Scarcity: Why having too little means so much, which summarizes some of the best behavioral economics work.

    Who are these guys?

    Our hard-nosed interview.

    Scarcity is especially valuable to anyone who witnesses the tragic reality that many people who live close to the economic waterline behave in ways that hinder their efforts to escape poverty. Low-income workers turn to payday lenders. Welfare recipients fail to take maximal advantage of available training programs. Talented young people miss critical deadlines, and therefore fail 9th-grade English and sabotage their academic efforts…. Read the rest of this entry »

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  • The nature of the (illegal) firm

    My University of Chicago colleague Ronald Coase died recently—too soon at the age of 102. He had just published a book on the subject of Chinese economic development. I regret never having had the chance to meet him.

    He’s most widely remembered for his deceptively-simple “Coase theorem.” When property rights are unambiguous, information is freely available, and the costs of bargaining and contracting are low, private parties can negotiate efficient solutions to externality problems without further need of government intervention.

    If, for examples, Austin’s factory emits water pollution that stains the shirts being cleaned downstream in Aaron’s laundromat, the two firms can work this out. Maybe the most efficient solution is for Austin to install an exhaust filter. Or maybe it’s cheaper for Aaron to buy different washing machines or to move. As long as Austin and Aaron can easily bargain, they’ll do whatever maximizes their total surplus. If the filter is cheapest, Austin will install it. Property rights matter, but only in determining who will pay. If Aaron has a clear legal right to clean water, Austin will buy the filter. If Austin has a clear legal right to emit this pollution, Aaron will pay for the filter instead. Coase’s 1960 analysis of such problems arguably provided the starting-point for the discipline of law and economics.

    Coase’s lesser-known 1937 paper “The Nature of the Firm” is more directly useful for my work. Here Coase noted another deceptively simple paradox of the modern market economy. We teach our Econ 101 students that the price mechanism allows a decentralized, miraculously efficient allocation of activities and resources. Under the proper conditions, anyway, the invisible hand is genuinely powerful with no need of further central planning.

    Yet we somehow have these organizations called “firms,” whose internal processes more closely resemble command economies than they do the textbook price-driven competitive economy. Just today, Walmart’s publicity materials compare living-wage legislation to state socialism. Yet its managers operate an internal command economy to allocate hundreds of billions of dollars in capital while coordinating the efforts of more than two million employees.

    I don’t offer this as a criticism. It’s just an interesting puzzle. Why would a firm become that large? Why not larger? Walmart buys Vlasic pickles and plastic toys from China. Why doesn’t it open its own pickle and toy factories, dispense with the suppliers, and manufacture these items in-house?

    These are the kinds of questions that fascinated Coase. These have obvious parallels in healthcare. Why don’t the Harvard teaching hospitals or the Mayo Clinic exploit their quality reputations to become Walmart-size organizations across the country? When is it wise (or unwise) for an academic medical center to buy up local medical practices? And so on.

    One might ask similar questions of illegal organizations such as drug cartels or terrorist organizations. Consider one trivial example:

    Drug-selling organizations transfer wads of cash from New York, Moscow, London, and Paris to source countries. Couriers smuggle cash using specially-constructed high-top sneakers with hidden compartments crammed with 500-Euro notes. A normal firm wouldn’t need to launder its money. And if a normal firm somehow required a special shoe, it could simply contract with Nike or New Balance to build its specialized gear. Drug cartels can’t hire these things out. They must do this work in-house, inexpertly and at higher cost.

    I could tell rather similar stories for bookkeeping, security services, and more. Replicated a thousand times over, such examples exemplify one dynamic that leads clandestine industries to be inefficient. Obviously, there are others; this is one.

    Criminal entrepreneurs, operating in the shadows, weigh the risks, costs, and benefits of moving the boundaries of their organizations. My friend and colleage Peter Reuter is one of the nation’s leading experts on drug-selling organizations. He notes that these entrepreneurs balance a different set of risks from those faced by their legal counterparts. Sometimes they are inefficiently large, as when they keep in-house sensitive tasks that legal businesses could easily farm out to others.

    More often, these organizations are too small. RAND researchers estimate that the (untaxed) price of marijuana might drop by as much as 80% if these products could be openly manufactured at industrial scale using the most efficient methods. Reuter notes one striking feature of illicit drug markets: their extreme lack of vertical integration. From the Traffik-depicted Afghan poppy grower to Avon Barksdale on the streets of Baltimore, heroin may pass through ten separate organizations.

    Why is that? The first issue is obvious. The larger the organization, the more people are in some position to rat-out the criminal entrepreneur. It’s profitable to expand the organization only to the point where decreased coordination costs are offset by the marginal increase in enforcement risk. Police interactions matter, too. Integrating across markets might require coordinating the corruption of several different law enforcement agencies.

    Coase might have something to say about terrorism, too.

    After 9/11, I had lunch with some friends from engineering school. They casually reeled off a succession of plausible atrocities a moderately-skilled group of fifteen terrorists could perpetrate in major American cities. The physicist Richard Garwin published a similar frightening piece in the New York Review of Books.

    Almost none of these frightening possibilities have been realized. It’s surprisingly easy to generate clever ideas for mass murder. It’s surprisingly hard to coordinate the efforts of more than a handful of people to perpetrate these atrocities while evading the hostile gaze of military and law enforcement agencies.

    The recent debate over NSA snooping includes claims and counterclaims regarding the efficacy of our spying in thwarting identifiable plots. These are interesting questions; this debate is also massively incomplete. The most important impacts of our counterterrorism efforts are less direct.

    Seventy-six years ago, Ronald Coase noted that the invention of the telephone was essential for the development of geographically-dispersed massive organizations. When we snatch away the use of that telephone, when we force Al Qaeda to deploy inefficient couriers and to deploy huge efforts guarding against covert operations, we degrade their organizational capacity to do us harm.

    Such strategies can bring unexpected consequences. Al Qaeda may respond by fragmenting into decentralized franchises that are more difficult to address. In big-city America, law enforcement has achieved unprecedented success in decapitating or weakening hierarchical criminal organizations. You really can’t be a celebrity criminal anymore. Law enforcement is too capable when faced with a direct challenge like that. What these organizations leave behind is a much more fragmented set of cliques and crews who are, at times, more violent than the more cohesive criminal organizations they have replaced.

    This seems paradoxical, but it’s not. Criminal organizations seek profit, not mayhem as an end in itself. A key challenge of violence-oriented law enforcement is not (merely) to wipe out or suppress these organizations, but to ensure that criminal entrepreneurs pursue business models that are less violent and less harmful to their communities.

    The seriousness of many police departments in pursuing violence-oriented approaches seem quite helpful in reducing urban violence. As they pursue these strategies, Coase’s classic insights regarding the boundaries and functions of modern firms may prove surprisingly helpful.


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