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Monthly Archives: August 2009

Market-Based Health Reform Relies On Rational Consumers Who Don’t Exist

Like me, Dan Belsky is a doctoral student in the department of health policy & management at UNC. This is his first contribution to Wright on Health.
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In the September 2009 issue of the Atlantic Monthly, David Goldhill—a business executive—writes about “How American Health Care Killed My Father.” Goldhill correctly diagnoses the fundamental problem with the health care system as one of incentives—we pay doctors and hospitals for more, rather than better, medicine—but errs terribly in its prescriptions for a solution.

Without directly acknowledging them, Goldhill proposes essentially the same market-based model economists began pushing in the 1970s and that lives on at the Heritage Foundation and other conservative think tanks. The basic idea is that if consumers are made to realize how much their health care costs—by making them pay for it out of pocket—”rational” consumers will force providers to deliver more effective medicine at lower cost. That’s how markets work, right? Producers deliver consumers ever cheaper and higher quality products in order to stay competitive. The problem is, it doesn’t always work that way.

See Exhibit A, the recent near-collapse of our global financial system. Products in the system were highly complex and consumers, even big institutional consumers able to pay professionals to vet their purchases, failed to make “rational” (i.e. profit maximizing) choices. Investors got caught up in a spirit of “irrational exuberance.” As some investors appeared to get rich quickly in a system where real-estate and its derrivatives went nowhere but up, other investors decided that they didn’t want to be left out of the party, even though they weren’t quite sure why everyone was celebrating. When the music stopped, people panicked, and dumped good investments along with the bad. Meanwhile, the rating agencies that were supposed to protect consumers by providing them unbiased information about the quality of investment products turned out to be not quite as independent from the folks selling investments as everyone thought.

Each of these three problems, complexity, irrational exuberance, and a lack of good information on the quality of goods and services, exists in parallel in health care. Modern medicine is every bit as complex as fancy Wall Street derivatives. Let’s look at an example. Marty, a 38 year old man, goes to see his doctor complaining of neck pain. His physician—like all physicians—has gone through four years of graduate school and additional residency training (2 to 10 years depending on specialty) before being allowed to serve patients without supervision. After residency, many physicians even undergo fellowships to receive more training.

Under this system, physicians are so specialized in their one area of medicine that they are barely able to evaluate choices made by their colleagues in other specialties. What chance does an “average” consumer like Marty have when it comes to understanding and making health care decisions? If Marty’s doctor suggests an MRI of his neck, how will Marty decide whether or not his pain warrants the scan, or if it is worth the $1,500? It could be nothing more than a bad pillow on the bed. Or, it could be a tumor.

Then there’s irrational exuberance (or paranoia). If the news is full of cancer stories, Marty is much more likely to suspect a tumor. Alternatively, if the mood of the moment is about toughening up, the pain may be ignored, even when there is a cancerous lump to go with it.

Finally, there’s the issue of trust. While we have organizations ranging from the web-based Angie’s List to the well established Joint Commission whose job it is to rate health care providers, these raters are not independent of the groups they rate. They depend on health care providers for their continued existence, as well as much of the data used to generate ratings.

To make matters worse, providers can game the system, finding out how ratings are generated and manipulating their resources to maximize quality scores without actually maximizing quality (US News and World Report has this problem with colleges). Under the best circumstances this leads to an arms race between raters and providers, squandering resources that might otherwise go to patients. Under slightly less rosy assumptions…well, see Exhibit A again.

The upshot of this analogy is that there are good reasons to believe health care markets will not be “efficient.” That is, unfettered competition will not lead to the best product at the lowest price. Information asymmetries and conflicts of interest leave consumers poorly equipped to act as rational purchasers of health services. Now add to this mix the problem that people making health care purchasing decisions are usually—and sometimes very—sick.

As has come up often in the faux debate surrounding counseling for end of life decision making, individuals facing their last days may judge having just a few more to be a great deal more valuable than they would have a year or two earlier. Similarly, expensive tests may seem well worth the money to those suffering from an unknown ailment, even when the chance they will help is known to be slim. When the tests come back inconclusive and the illness abates on its own, those consumers may be angry, they may not use that doctor again, but they may also be bankrupt.

The point of all this is that we consume health care under a set of circumstances that make “rational” choices unlikely if not impossible. Goldhill makes a good point that health insurance is unlike any other kind of insurance we buy. This is why in most of the developed world they don’t sell it like insurance. They just give it to people and pay for it with tax revenues. That way, consumers don’t have to make decisions they don’t understand at times when they can’t think clearly, and nobody has to die because they can’t afford life saving care.

-Dan Belsky and Brad Wright

 
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Posted by on August 31, 2009 in Uncategorized

 

Medicare Enrollees Unite To Keep Government Out Of Health Care

Yep. It’s still going on. The men and women of this country who have been blessed to live to age 65 are either confused or, more than likely, feel a sense of entitlement about their health insurance. You see, they love their Medicare, but despise the idea of government involvement in health care. I’ve written about this already, as have many others, and it seems that clearing up a misconception hasn’t been sufficient to stop the rallying cries of seniors to “Keep the government’s hands off my Medicare!”

That leads me to believe one thing: Old folks aren’t confused about Medicare being a government program. On the contrary, they know that it’s a government program, and they love it. No, the issue is one of their feeling entitled to the benefits they enjoy and worrying that if the government extends benefits to others who the elderly consider undeserving, it will mean relinquishing a portion of their entitlement. After all, government can’t do everything, right? There will inevitably be some sort of rationing wherein Congress robs from Peter to pay Paul.

So, why do seniors feel so entitled? Well, one argument would be that they have paid their dues into the system and now they are just getting back what they put in. That sounds plausible until you realize that current Medicare enrollees are receiving far more back in benefits than they ever paid into the system. Is it because they are retired, unable to work, or otherwise hindered by their age from taking care of themselves and securing their own health insurance? Could be. But by that logic, there are plenty of people who we fail to cover in this country, even though they face many similar obstacles. For many, age is a valid excuse, however, while social, environmental, and other contextual factors that plague the non-elderly doesn’t justify help from the government. Some have even argued that latent racism drives the gap between deserving and undeserving.

As Ezra Klein points out, like everything else in politics–the art of who gets what, when, where, and how–this is a matter of two groups: us and them. We like what we have. We don’t want them to take it away from us. We deserve it. They don’t. It is the most selfish, self-centered reasoning imaginable. Honestly, it’s hypocritical. If all of these seniors decrying governmental involvement in health care at town halls are serious, then they ought to tear up their Medicare cards and tell the Congress, “Thanks, but no thanks.” They’ll never do that, though, because you see, they love government involvement in health care as long as it’s on their behalf. They only hate it when it promises to help someone else.

 
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Posted by on August 31, 2009 in Uncategorized

 

Lazy Sundays 7 – Reflecting on the Life and Death of Senator Kennedy

This weekend, I think it only appropriate to reflect on the life and death of Sen. Edward M. Kennedy. Think what you will of the man, he certainly has a long history of accomplishments in the Senate and an equally long history of displaying the character flaws that made him human. In fact, a piece by Timothy Noah does quite a good job of presenting a balanced account of both sides of Ted Kennedy. As we lay an unquestionably remarkable statesman to rest, let us read what others have to say about him…..

Given the number of entries, I provide you links only with the authors’ names (in no particular order), but sans titles.

Michael Tomasky
Spencer Ackerman
Harold Meyerson
Adam Serwer
Charles Pierce
Avi Zenilman
Sean Wilentz
Thomas Schaller
Ryan Grim
Julian Zelizer
Joe Klein
Adele Stan
Jeffrey Toobin
Dayo Olopade
Dean Baker
Ethan Porter
Tim Fernholz
Ed Kilgore
Michael Cohen
Steve Clemons
Mark Schmitt
George Packer
Eric Alterman

 
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Posted by on August 28, 2009 in Good Reading

 

How We Die: A Fond Look Back At 2006

One of the cornerstones of the health reform argument is: “We pay a lot more than everyone else, but what do we get for it?” Usually, the answer–if we’re looking at life expectancy at birth as the outcome for comparison–is not much. That’s because, when it comes to life expectancy, the United States tends to rank well below most of the industrialized nations that spend far less than us on health care.

But not so fast. Now, it seems, Betsy McCaughey has taken to citing the work of health economists Bob Ohsfeldt and John Schneider that the U.S. has one of, if not the highest life expectancies in the world — if you start throwing away data on accidents and homicide. You can read more about this in an article from Matthew Dalton.

In the course of my doctoral training, I’ve never been advised to start ignoring data, and have actually been strongly advised against data mining (i.e., running model after statistical model and letting the numbers tell you the “truth.”) So, I don’t put much stock in the numbers McCaughey’s bandying about. Instead, I prefer to present the data in their entirety. So here’s a look at the things that killed us in 2006 according to the National Center for Health Statistics at the CDC:

Now, just imagine how long our life expectancy would be if we chose to calculate it while excluding heart disease, cancer, or “everything else.” Perhaps, if we run enough regression analyses, we’ll be able to live forever!

 
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Posted by on August 28, 2009 in Uncategorized

 

Waxman Planning To Turn Spotlight On Private Insurers

I and many others have written about the shift in the reform debate from focusing on “health care” to focusing on “insurance.” The reason is simple: In any good argument against the status quo, there needs to be a clear enemy — a problem that must be fixed. In general, people like health care. It is insurance companies that typically trigger negative thoughts among many in the public.

But insurers aren’t taking any of this lying down. They make big money in health care, and changing the status quo threatens that. So, of course, they push back with their own lobbyists and have worked diligently over the years to make financial contributions to key members of Congress. [As an aside, I just completed a two-day seminar on ethics in health services research. I think Congress should be required to attend next year.]

The fight will be won by whichever side is able to make the bigger push, and money and power favor the organized and entrenched health care interests — especially the insurers under attack. The only way to fight back, is to generate enough of a public outcry that it drowns out the insurance lobby. So far, that’s not quite happened, but Rep. Henry Waxman (D-CA) is out to change that.

He’s written letters to every major insurance company asking for information on the salaries, stock options, perks, retirement funds, and other financial considerations for all insurance industry executives earning more than $500,000 a year. He’s also asking for information on their products’ premiums, their revenue, claims payments, and more. The point: To find out just how bad the insurance “bad guys” are, and share that information with the public.

I think it could work. People certainly haven’t taken well to greed and corruption when it has been exposed in other industries (Enron, Bernie Madoff, and the like come immediately to mind). Americans tend to value hard work–and often categorize the poor as lazy and undeserving–but when they see that some very outwardly successful, exorbitantly wealthy individuals have risen to great heights without merit the results are even worse. These sorts of people are not poor, but the illegitimate means of achieving their wealth leads them to become social outcasts. Depending upon what Rep. Waxman uncovers, and just how widespread and damning the information is, private insurers may suddenly find that they are facing a terrible public backlash, and health insurance reform may find new life.

 
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Posted by on August 28, 2009 in Uncategorized

 

Political Calculations: Best. Blog. Ever.

Ladies and gents, it’s Friday, and I have a lot of work to do before the weekend arrives, so I don’t know how much blogging I’ll be doing today (probably more than I ought). However, I just stumbled across one of the most interesting websites I’ve seen in a long time, and I have to share it with you.

It’s called “Political Calculations” and it’s basically a blog about all sorts of politico-economic issues, but the cool thing is that they have all of these “tools” on their site you can play around with. For instance, there’s a handy gadget that lets you select your age and then it tells you how many years of life you can expect to live going forward (on average). This is handy for people who just turned 79 and thought they had “outlived” their life expectancy. This tool shows you why that’s not possible.

There’s also–and this might be my favorite so far–a tool that helps you decide whether or not your health issue warrants a visit to the doctor or not. Friends, this one is hilarious. It has a variety of questions, which you rate 1 – 10, where in some cases you are told just how bad “10” is (e.g., fell asleep on a waffle iron.) Truly fantastic stuff.

So, at lunch today, I urge you to go explore the site. You’ll be glad you did.

 
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Posted by on August 28, 2009 in Uncategorized

 

An Update on Ted Kennedy’s Vacant Senate Seat

As I wrote a short while ago, the absence of Sen. Kennedy from Congress has already been taking a toll on the health reform debate, and the vacancy left by his death could seriously alter some of the politics around the legislation.

Kennedy wrote to the Governor and State Legislative Leadership asking them to revise regulations that would allow the Governor to appoint a temporary successor to Kennedy before a special election is held. News from the Boston Herald indicates that such an effort may be moving forward quickly. I think it’s only fair–especially given Sen. Kennedy’s dedication to the health care issue–that his constituents be represented in the Senate during this very active time in politics. What do you think?

 
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Posted by on August 27, 2009 in Uncategorized

 

Moving Away From Fee-For-Service Medicine

Many of my posts have made reference to the need for us to move away from a fee-for-service payment structure in medicine. I’ve offered that a workable alternative might be a combination of risk-adjusted capitation and pay-for-performance incentives.

Rather than reinvent the wheel, I refer you to an excellent outline of such a plan from the Center for Healthcare Quality & Payment Reform. If you have questions about it, leave comments, and I will do my best to respond.

 
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Posted by on August 27, 2009 in Uncategorized

 

Bob Collier Is The New Joe The Plumber

You’re probably asking “Who is Bob Collier?” Before last Tuesday, he was just a “regular joe” from southwest Georgia. Thanks to a New York Times article from Kevin Sack, Collier could become the next “Joe the Plumber” if he’s not careful. There are plenty of people who could fill that role, but for some reason Sack chose to write about Collier. As a fellow Georgian (I’m from the southeast part of the state), I couldn’t resist sharing Collier’s story.

In brief, Collier and his wife are your traditional, hard-working, salt-of-the-earth, conservative southerners. I know that might conjure up a negative stereotype for a lot of you, but these aren’t bad people. I should know. Most of my family could be described the same way. But even good people, like Mr. Collier, can hold misguided views.

In the article, Collier is quoted as saying the following:

“This is about the future of our country as we know it, and may mean the end of our country as we know it….We’ve got to do something about those people who can’t get insurance. There has to be a safety net there. But I don’t want that safety net to catch too many people….I think you’re going to have all the efficiency of the post office with the compassion of the I.R.S….[and] lazy and irresponsible people who play the system.”

From his own words, you can tell that Collier believes in helping those who really need it, but he also believes in hard work and shuns what he perceives as laziness. Obviously, the line dividing “justified” assistance from “unjustified” assistance is very difficult to draw. Most people living in unfortunate circumstances are not there because they are lazy. There are just far too many factors involved for such a simple label to make sense. Honestly, I can remember being told frequently when I was growing up just how lazy I was. And if I’m being honest with myself, I’d still much rather watch football on TV than go for a run. Doesn’t that mean I’m lazy? But, I’m doing pretty well for myself. Maybe it’s only certain kinds of laziness that lead to the sort of personal decline folks like Collier like to refer to.

The point is, I think most Americans feel the way Collier does. They believe in deserving and undeserving poor. Conservatives may think most of the poor are lazy and undeserving, while progressives may not like to blame the poor for their predicament, but I genuinely believe that everyone has some concept of folks who need help and those who abuse the system.

In the last election, Republicans used Joe the Plumber for political gain, but I think Democrats could have done the same if they had framed things differently and been quicker on the draw. The same is true now.

Bob Collier is about the best example of “everyman” you can find in this country. There’s just one problem: He and his wife have voted Republican consistently since 1980. That fact alone probably prevents most Democrats from seeing the value in making an example out of Bob Collier. Some are even criticizing the Times for profiling a person so unrepresentative of the public’s views on health reform. But they ought to take a second look. Health reform would help Collier–even he admits “I know we need some reform”–but he has to be shown how he and his wife would benefit. Progressives are often criticized for being out of touch with the people. This is a chance for them to change that image, win the hearts and minds of the American people, and win big politically, by giving the country the health reform it so desperately needs.

 
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Posted by on August 27, 2009 in Uncategorized

 

CBO May Be Nonpartisan, But They Make Conservative Estimates

The Congressional Budget Office is tasked with “scoring” legislation (i.e., figuring out the net costs of a proposed bill were it implemented). Unlike their counterpart the Office of Management and Budget, the CBO is traditionally considered a non-partisan agency. As such, people–especially members of Congress–tend to trust and rely heavily on the estimates CBO produces.

All that talk you’ve been hearing about health reform costing $1 Trillion over 10 years? That number–and variations around it–comes from the CBO. The thing is, the folks at CBO know that cost projections are an inexact science. That’s why they refuse to make long-term projections beyond the 10-year window. At that point, they concede, there are simply too many unknowns for reliable estimates to be made. Fair enough, but I think that tends to make us put just a bit more confidence in their 10-year numbers than perhaps we ought. After all, those projections–even in the first year–are based on a wide range of assumptions.

As Jon Gabel writes in yesterday’s New York Times, the CBO may be non-partisan, but it tends to err on the side of making conservative estimates. That doesn’t mean that estimates are biased to favor the Republican party, but rather that estimates “play it safe” — they overestimate new costs and underestimate savings. The result is that CBO scores tend to be higher than the reality that actually plays out. Gabel’s piece finds this by judging CBO estimates of health reform retrospectively. Looking back now, what did CBO project things would cost and how much did they actually wind up costing? He finds that, for the three major health reforms looked at, the CBO estimates were too high all three times. The reason? Well, I want you to read the article, so I’ll just say it has to do with making assumptions about unknowns when there is no historical precedent to rely on.

What does all of this mean? Just that you should take CBO estimates with a grain of salt, because after all, they predicted that you’d actually use two grains of salt.

 
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Posted by on August 27, 2009 in Uncategorized

 
 
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