There’s a meme floating around that the storyline of Breaking Bad constitutes a scathing indictment of the U.S. healthcare system. The latest entry is this comic strip, which says that if Breaking Bad had been set in the U.K., it would be an “entirely different story” – one that ends in just 5 panels. But it’s not just comic strips. Daily Kos says that Breaking Bad “Displays [the] Brutality of American Private Health Insurance Non-System,” while Tricia Romano at the Daily Beast says the show “Is Fully Dependent on Our Broken Health-Care System.” There are probably other examples.
The problem with this claim isn’t that the U.S. healthcare system is actually wonderful. It’s not. The problem is that it’s just not consistent with the actual TV show. I can verify this because I’ve rewatched the whole first season (and much of the second) over the last couple of weeks.
Walter White makes his first foray into the meth business before health expenditures are even mentioned. Walter does have insurance coverage, and his HMO will cover his cancer treatment. It’s true that Walter mentions that his HMO isn’t very good at some point, but that’s as far as it goes. As it turns out, Walter doesn’t even intend to endure the treatment (as revealed a few episodes later in “Cancer Man”). It’s very clear that Walter’s overriding goal is to leave a nest egg for his wife, disabled son, and unborn baby.
Eventually, health costs do become an issue when Skyler pressures Walter to undergo treatment after all. But it’s not because his HMO won’t pay. It’s because Skyler finds an oncologist who is not just one of the best in Albuquerque, but one of the top 10 oncologists in the nation. It turns out this super-doctor with his fancy cancer treatment is not covered by the HMO, and the out-of-pocket price is $90,000. Some will say that’s the smoking gun that indicts the U.S. healthcare system. But there is no system in the world that offers high-end care to everyone. The vaunted U.K. and Canadian systems offer care to every citizen, but they don’t offer the best care to every citizen. That’s just not possible. A single-payer system is essentially a giant public HMO, and just like private HMOs, they sometimes deny treatment or (more relevant here) deny the highest-quality treatments. Citizens who aren’t happy with the coverage provided by the government system have to pay for it themselves, either through supplementary private insurance or out of pocket. Sometimes they even travel to foreign countries, like the U.S., for that care.
To reiterate: Walter White has health insurance, and it would have covered his cancer treatment. The only reason Walter needs so much money for medical bills is because he opts out of his insurance coverage in favor of higher-quality, more expensive treatment. And even then, it’s clear this isn’t Walter’s only motivation. In the episode “Seven Thirty-Seven,” Walter calculates how much he needs to sock away, and he comes up with $737,000, not just the $90,000 for the cancer treatment. This is a story that could have been told in many countries, including both the U.K. and Canada.
I’m not saying we can’t imagine a version of Breaking Bad that does condemn the U.S. healthcare system. For instance, they could have had Walter lose his job, and his health insurance with it, right before getting his cancer diagnosis. Less plausibly, they could’ve had his deductible and copayments be so large that he has to cook meth to pay them. (I say “less plausibly” because while those sums can be large, they’re probably not large enough to explain Walter White’s extreme actions.)
But Breaking Bad did not choose either of these routes. In fact, the show often goes out of its way to show that ultimately it’s not really about money at all for Walter; it’s about pride. Pride is why he didn’t want to have treatment in the first place. When his former colleague Elliot Schwartz offers to pay for Walter’s non-covered cancer treatment, it’s pride that makes Walter say no. And pride is why Walter continues to cook meth long after he’s achieved his monetary goals. Blaming the events of Walter White’s life on the U.S. healthcare system isn’t just wrong; it’s missing the entire point of the show.
Friday, September 13, 2013
Breaking Bad and the Healthcare System
Wednesday, September 21, 2011
Aesop Econ: The Grasshopper and the Ants
Here’s one I remember from childhood:
THE ANTS were spending a fine winter’s day drying grain collected in the summertime. A Grasshopper, perishing with famine, passed by and earnestly begged for a little food. The Ants inquired of him, “Why did you not treasure up food during the summer?” He replied, “I had not leisure enough. I passed the days in singing.” They then said in derision: “If you were foolish enough to sing all the summer, you must dance supperless to bed in the winter.”Wow. There’s so much econ in this fable it’s hard to know where to start.
Obviously, we’re looking at a problem of intertemporal choice. The insects must decide how much effort to exert during an earlier period (summer) to prepare for a later period (winter). Exerting effort entails a present cost in terms of forgone leisure, but a future benefit in terms of consumption. The optimal choice depends on the magnitude of the subjective costs and benefits, as well as the chooser’s rate of time preference -- that is, how much he values the present relative to the future.
To a behavioral economist, the fable involves myopia or hyperbolic discounting. To simplify greatly, the grasshopper places too much weight on the present simply because it’s the present. If asked during the spring to choose his summer behavior, the grasshopper might plan to work harder. But then the lazy days of summer arrive, and suddenly he decides to kick back. This is known as time inconsistency, and it is often regarded as evidence of cognitive bias or irrationality.
To a neoclassical economist, however, this is clearly a fable about moral hazard -- the tendency to take greater risks when shielded against the consequences. No one knows whether the coming winter will be mild or harsh, and so they must choose between storing up food or taking a gamble. The grasshopper’s failure to work during summer might well be a rational response to the expected assistance of others in the event of a harsh winter.
And this raises the specter of the Samaritan’s Dilemma. People of a kind and decent disposition don’t wish to allow others to suffer, especially if helping them would be a small sacrifice. But providing charity may foment moral hazard, thereby leading to more people needing help.
The Samaritan’s Dilemma featured prominently in the most recent Republican presidential debate, in which Wolf Blitzer posed a tough question to Ron Paul:
A healthy 30-year-old young man has a good job, makes a good living, but decides: “You know what? I’m not going to spend $200 or $300 a month for health insurance because I’m healthy, I don’t need it.” But something terrible happens all of a sudden, he needs it. Who’s going to pay if he goes into a coma, for example? Who pays for that?This 30-year-old man is the grasshopper, and we are the ants. Aesop’s ants take the position of Ron Paul: “Well, in a society that you [sic] accept welfarism and socialism, he expects the government to take care of him. … But what he should do is whatever he wants to do, and assume responsibility for himself.” I find it interesting that so many people -- who presumably heard this fable in their childhood and thought it wise – found Paul’s answer reprehensible.
Paul also advocated private charity as an alternative to government. Yet private charity, too, creates the potential for free-riding by the irresponsible. So there is a tension in Paul’s position. John Goodman explains how the tension can be resolved:
[P]rivate sector charitable activities are never run like government entitlements. If you are away from home and lose your wallet, the local Salvation Army will give you a meal and a place to sleep and maybe even some cash. But they will not do this day after day, night after night. It’s probably fair to say that all private charities seek to give aid without encouraging dependency.Aesop’s ants follow a similar policy; they do not refuse the grasshopper aid outright, but instead inquire as to how the grasshopper’s situation arose. Of course, charitable discretion is not a perfect answer. There is always the risk of denying help to the deserving, and also the risk of giving help to the undeserving (what if the grasshopper had lied?). But if you grasp the Samaritan’s Dilemma, you realize there is no perfect answer; that’s why it’s called a dilemma.
Thursday, November 18, 2010
The Skin Trade
So it turns out there’s a market for infant foreskins that have been removed by circumcision (link via Marginal Revolution). A single foreskin can sell for thousands of dollars. A few thoughts that went through my mind in quick succession:
1. Revealing that some part of my brain still doesn’t think like an economist, I immediately thought: “What a gyp! The hospitals are getting money that rightfully belongs to the baby’s family!”
2. But wait a minute. The foreskin’s value should be incorporated into the price. The parents’ hospital bill for the birth week might be higher if foreskins weren’t sold. Hospitals that didn’t offer the foreskin-discount would lose customers to those that did.
3. But that conclusion depends on there being effective competition among hospitals. And in the current healthcare market, there’s some competition, but not very much.
4. So how could we find out? Maybe we could look for differences in hospital bills between male and female babies, or between non-Jewish and Jewish babies (since the latter would typically be circumcised outside the hospital).
5. But all this is complicated by the fact that circumcision is a surgical procedure, and therefore has some cost. What we really need for a proper comparison is a group of patients who do get circumcised by doctors, but under circumstances in which foreskin sale is not possible. And that suggests...
6. Adult circumcisions. Adult foreskins don’t have the special properties that infant ones do, so there’s no resale value. Problem is, ceteris paribus doesn’t hold here. Anesthesia is most likely different between adult and infant circumcision, and I suppose the difficulty of the procedure might also differ.
That’s about as far as I got. Anyone have suggestions on how we could discern whether the value of foreskins is incorporated into hospital prices?
Monday, April 05, 2010
A Question of Timing
Shortly after the healthcare bill’s passage, I made some comments about the weirdness of the timing. Specifically, I noted (following Bryan Caplan and David Henderson) that guaranteed issue appears to kick in three years before the individual mandate – which, if true, would set in motion a rather severe adverse selection problem.
But now I’m not sure that’s the timing after all. If you check out the official timeline, the first thing that’s supposed to happen, in 2010, is:
Immediate Access to Insurance for Uninsured Individuals with a Pre-Existing Condition. Provides eligible individuals access to coverage that does not impose any coverage exclusions for pre-existing health conditions.I took that to mean that guaranteed-issue would take effect immediately. But a couple of items below, the timeline includes a separate item, also in 2010, for “Eliminating Pre-Existing Condition Exclusions for Children.” And only in 2014 do we finally see something that sounds like guaranteed-issue for adults: “strong health insurance reforms that prohibit insurance companies from engaging in discriminatory practices that enable them to refuse to sell or renew policies due to an individual’s health status.”
So it appears that guaranteed-issue and the individual mandate might be coordinated after all. But if so, then does anyone know what the quoted passage above is referring to? One of the subsidies? A high-risk insurance pool? Anyone know?
Incidentally, I think some form of adverse selection will happen anyway, because I doubt that the individual mandate will be that effective in assuring compliance. But if the timing is right, the adverse selection won't be as severe.
Wednesday, March 24, 2010
Self-Promotion and Other Thoughts on Healthcare
First, I’ll be speaking in a forum about the individual mandate (and probably other aspects of the newly passed bill) this evening in Pasadena, California (6:30 pm PDT). So if you’re in the area, please come. The forum will also be recorded and aired on KPCC sometime tomorrow. [UPDATE: The host, Larry Mantle, said the recorded version will air at 11:00 a.m. PDT on Thursday, on KPCC 89.3.] [UPDATE: You can listen to the recorded version here.]
Second, a couple of thoughts about the new legislation.
1. Obviously, I’m not pleased about its passage. But there may be a silver lining. For years, critics have tarred the “free market” for all the problems with American healthcare, despite the existence of government intervention at every level of the system. Now that the interventionists have gotten what they want, maybe it will be just a little harder for them to blame the market a few years down the road when the system is still having problems.
Okay, I’m stretching here. They’ll blame the market as long as the system is anything short of single-payer. Especially given this…
2. I think Bryan Caplan and David Henderson are exactly right: the timeline for implementation virtually guarantees a severe adverse selection problem. Remember, the justification for an individual mandate -- such as it is -- is that it’s needed to make the guaranteed-issue regulation work. Otherwise, people will just wait to get sick and then buy insurance. But in the timeline, the individual mandate doesn’t kick in until three years after guaranteed issue.
So for three years, we’ll have low-cost people dropping off the insurance rolls and high-cost people jumping on, resulting in ever-higher premiums. Given the arguments made by the left-wing proponents of the bill, I can’t imagine they don’t know this – so I have to wonder, along with Henderson, if this might have been intentional. By the time the individual mandate’s about to kick in, it will seem absolutely necessary.
But what happens after that? Will the adverse selection problem disappear as the low-cost folks are forced back into the pool? I don’t think so. The penalties for not buying insurance are very low relative to even the present price of insurance -- to say nothing of its price once the adverse selection has set in. So a lot of people will choose to pay the penalty instead.
Now, it’s true that if you buy insurance instead of coughing up the penalty, you’ll at least have health coverage... but so what? Guaranteed issue will still be in effect, and so there’s not much advantage to getting the coverage immediately. Just pay the penalties until you get sick, then sign up for insurance. The worst that can happen is you have to pay for the treatments that might happen in the interim between getting the bad news and getting your new policy. And this strategy will make sense as long as the penalty is less than the yearly price of insurance coverage.
To patch that hole, the government will have to increase the penalty until it's effective -- that is, until it’s relatively close to the annual insurance premium. I predict a slippery slope to higher penalties.
I am, however, leaving out the effect of subsidies. The real comparison will be (annual price – annual subsidy) versus (annual penalty). With large enough subsidies, people will choose to buy insurance. So I should modify my prediction above: we should expect some combination of rising penalties and rising subsidies.
Wednesday, February 24, 2010
Uncompensated Care for the Uninsured
As David Henderson observes, it's nice to see that the Economic Report of the President actually includes facts and sources. Of course, that opens the analysis up to criticism it wouldn't otherwise face.
The Report notes four sources of inefficiency in health insurance markets: adverse selection, moral hazard, the Samaritan's dilemma, and incomplete insurance contracts. But as Henderson points out, the Report itself draws attention to the market solutions for the first two of these -- and oddly condemns them. (Risk-rating is the market response to adverse selection, and high deductibles and co-insurance are the market response to moral hazard.) It's worth adding that government policies like community rating and mandated benefits exacerbate adverse selection, and government-provided care and insurance exacerbate moral hazard.
We should also cast a skeptical eye on the Samaritan's Dilemma -- that is, the willingness of the citizenry to provide care for people who can't or won't provide for themselves, which encourages free-riding. While this is a real issue (as are the other three cited inefficiencies), what is its magnitude? The Report says uncompensated care for the uninsured was $56 billion in 2008. That sounds like a lot. But the Report also says (elsewhere) total expenditures on healthcare in 2009 were $2.5 trillion. Assuming the 2008 and 2009 numbers are relatively close, we can do the math and conclude that uncompensated care for the uninsured is less than 3% of all health expenditures.
For what it's worth, I think the Report's fourth source of inefficiency, incomplete contracts, is probably the most serious challenge for private insurance markets. That is, aside from the various government policies that hobble them now.
Wednesday, February 17, 2010
Self-Promotion: Pro and Con on the Individual Healthcare Mandate
I was featured in Monday's L.A. Times "pro and con" article on the individual healthcare mandate. Here's a key bit:
The point of the individual mandate is to balance the risk pool, but that's not really what insurance is supposed to do. With car insurance, the idea is not that you want good drivers to pay for accidents caused by bad drivers. Instead, you want there to be pools of people with similar risk: bad drivers and good drivers who pay different premiums.I notice that a couple of commenters have taken issue with this argument, essentially saying "OF COURSE insurance is supposed to balance risk!" They're mistaken. But this is a point worth dwelling on, because it's easy to get confused.
Everyone knows that insurance does "balance risk" in a certain sense. It transfers wealth from those who have been fortunate (e.g., didn't get in a car accident, didn't have a house fire) to those less fortunate (e.g., did get in a car accident, did have a house fire). The premiums paid by everyone get paid out to a small group ex post. But ex ante, every policyholder could have experienced either outcome. To make this worthwhile for all buyers, they have to be pooled with other buyers who have similar risk. Otherwise, some buyers will find that it's just not worth it: their risk is too low to justify the high premiums.
This is very different from trying to "balance risk" in the sense of balancing low-risk policyholders with high-risk policyholders and charging them similar premiums. This approach creates a cross-subsidy from some policyholders to others ex ante. That is, even before we know which people will experience an unfortunate outcome, some policyholders are getting a much better deal than others. That's why some buyers drop out of the insurance pool -- because they're getting a lousy deal. Hence the demand for the individual mandate: it's needed to rope in the people who would rather opt out.
As a matter of terminology, the former should be called "risk pooling" and the latter "risk balancing"; using the same term for both just creates confusion. And as a matter of historical and economic fact, the insurance business arose primarily to do risk pooling. The idea that insurance should engage in risk-balancing is almost exclusive to healthcare, and it's assuredly the result of decades of government efforts to force insurance to accomplish policy goals that were no part of its origin.
Thursday, October 09, 2008
Reason.tv on Health Insurance
I'm featured in the new Reason.tv video, "How to Fix America's Health Insurance Crisis: GET SOME."
Interestingly, you can see both of my offices in this video: my CSUN office (at 2:45) and my FRINGE office (at 3:59, right above the Hustler store).
I think the video makes this pretty clear, but it's worth emphasizing again: there are real problems with the current healthcare system, and there are genuinely needy people who can't afford health insurance. The point is that we shouldn't exaggerate the issue. The "45 million uninsured" figure certainly overstates the problem. Besides including people who could afford insurance if they wanted to, that figure also includes people who are only transitionally uninsured (that is, they had insurance recently and will soon have it again), as well as people who could be covered by existing government programs if they just signed up. Also, lack of health insurance is not synonymous with lack of healthcare.
Monday, June 30, 2008
Misconceptions About Health Insurance Premiums
David Lazarus reports, with a tone of righteous condemnation, that women pay higher health insurance premiums than men. Apparently Lazarus considers it obvious that the sexes ought to pay the same. But why? Premiums differ on the basis of both risk and cost. It would be a shocking coincidence for men and women, who differ substantially in both physiology and behavior, to have identical health costs. Men almost certainly pay more for food on average, and nobody’s complaining about that.
As Lazarus recognizes, men pay more than women for car insurance, which he seems to think is okay because “Supposedly guys drive more recklessly and get into more accidents.” (Actually, I’ve read that it’s simply because men drive more.) The objection to women paying more for health insurance, it seems, is that women aren’t being rewarded for their greater virtue: “[W]omen ... live longer on average because they tend to eat right, exercise more frequently and take better care of themselves.”
But the purpose of insurance is not to reward good behavior. It’s to cover expected costs, and there are good reasons to think women’s costs will tend to be larger. Here’s one obvious reason: contraception is covered by many insurance policies, sometimes by law. The birth control pill costs about $20/month (or more), and that’s not including the cost of processing pharmaceutical insurance claims. Note that the premium differences Lazarus reports range from $9/month to $25/month. Granted, not all women use birth control, and some of the price is covered by copayments. Nevertheless, I’ll bet that a sizable chunk of the premium differential is explained by contraception.
If there’s an objection to be made here, it’s that it makes no sense to insure for contraception. It’s the equivalent of insuring your car for oil changes. Insurance makes most sense for covering low-risk, high-cost events. Contraception is neither. It would probably cost less for women to buy their contraception out-of-pocket and cut out the expensive middleman (although insurance companies might want to subsidize contraception to reduce the risk of having to pay for maternity care).
So why do we have insurance for contraception? First, as noted earlier, it’s a law in some states. Second, our tax code encourages us to pay for as much healthcare as possible through insurance, rather than out-of-pocket, in order to get the tax break. If we changed these laws, fewer insurance policies would cover contraception, and the difference between male and female premiums would probably shrink.
One possible response is that men also benefit from contraception, so they should bear part of the cost. But when will women be most likely to demand their partners contribute: when birth control is hidden within a premium differential, or when birth control is a monthly out-of-pocket expense? I suspect the latter.
Sunday, June 08, 2008
Genetics and Life Expectancy
The major problem with using life expectancy to measure the quality of a country’s healthcare system is that life expectancy is affected by so many things other than healthcare: diet, crime, geography, education, and so on. And, of course, genetics. According to this article from New Scientist magazine (subscription required), the Japanese are more likely to have a key longevity-improving gene (which happens to reside in the mitochondrial, rather than nuclear, DNA) than other nationalities.
The most striking example comes from Japan. Here, there is a common variant in mitochondrial DNA, a change in a single DNA "letter". A decade ago Masashi Tanaka, now at the Tokyo Metropolitan Institute of Gerontology, and his colleagues reported that this tiny change almost halved the risk of being hospitalised for any age-related disease at all, while doubling the chance of living to 100. Most Japanese centenarians have the variant, but unfortunately for the rest of us it's very rare outside Japan.Note that Japan always comes out at or near the top of life expectancy rankings.
Of course, we have long known (or at least suspected) that genetics had something to do with longevity. But for national health statistics, what matters is distribution; if the distribution of longevity-improving genes were independent of national origin, then genetic effects would wash out in international comparisons. As this example demonstrates, that’s not the case.
Wednesday, March 19, 2008
Listen to Me
I'm scheduled to be interviewed on Mike McConnell's radio show this morning (Wednesday) at 10:00 a.m. Eastern time. I'll be talking about the World Health Organization's ranking of national healthcare systems. The show is on Cincinnati's WLW (AM 700); you can listen to it live here; and it's also on XM satellite radio.
Also, I recently discovered that my 2006 testimony before a subcommittee of the Minnesota State House of Representatives, on the subject of alcohol regulation, is available here. So if you just can't get enough of my voice, you can listen to that as well.
Wednesday, March 12, 2008
More Self-Promotion on Healthcare
At the American Spectator online, I have an op-ed based on my Cato Policy Briefing on the WHO healthcare rankings.
The title ("WHOm Are They Kidding") was not my creation. While whom is grammatically correct in that sentence, in general I think it's okay to use who in idiomatic sayings like "who are you kidding," "who's fooling who," and "who do you think you're fooling" -- traditional grammar rules notwithstanding.
Wednesday, February 27, 2008
Self-Promotion on Healthcare
The Cato Institute has just released my Briefing Paper, "WHO's Fooling Who? The World Health Organization's Problematic Ranking of Health Care Systems." The arguments will be familiar to readers of this blog, since most of them were aired here first, but there's also some new material in there.
Also, my Cato article on individual healthcare mandates is cited in this Washington Post article from last Sunday. Individual mandates are in the news because they are the main point of difference between Hillary Clinton's and Barrack Obama's healthcare plans (Clinton's has them, Obama's doesn't).
Friday, December 21, 2007
Explaining the RAND Experiment
At Overcoming Bias, David Balan ponders the counterintuitive results of the famous RAND health insurance study. The RAND study gave one group of patients more generous coverage, and a second group of patients less generous coverage. Not surprisingly, the former group consumed a lot more health services. Surprisingly, the two groups had indistinguishable health outcomes. This is bizarre because, although we would expect health services to have diminishing marginal returns, we would not expect them to have zero marginal returns.
But Balan has a different problem with the diminishing returns explanation:
The problem is that some of the other evidence from the RAND study is not really consistent with this story. It seems that the marginal care consumed only by people with more generous insurance is not just low-value stuff. The marginal treatments consumed only by those with more generous insurance, in the opinion of expert doctors, looks a lot like the infra-marginal treatments consumed by everybody. But if that's true, doesn't it have to mean that all health care is of little value? If the marginal care looks just like the infra-marginal care, and the marginal care is of little value, then doesn't the infra-marginal care have to be of little value too?I don’t find this objection compelling. The concept of diminishing marginal returns does not require that marginal and inframarginal units differ from each other, only that they differ in their effects. If my firm experiences diminishing returns to labor, for instance, that does not mean the additional workers I’ve hired are not as good as the previous workers in terms of their strength or skill. I could hire perfectly identical workers and still experience diminishing returns because of overcrowding, insufficient capital support, and so on. Similarly, perfectly identical medical treatments might have diminishing returns because the most good is done by the initial treatments, little good by subsequent treatments.
What requires an explanation is not that marginal returns to (even identical) health services fall, but that they seem to fall to zero. For that, I’m guessing three factors are at work.
1. As many have noted (most recently here), additional health services can have adverse consequences. Additional hospitalization can mean greater exposure to disease, for instance. If health services are characterized by diminishing marginal health benefits and increasing (or even constant) marginal health costs, the net marginal effect eventually goes negative – even ignoring the cost of providing the service.
2. We’re only looking at two different groups, one of which consumed much more health care than the other – about 40% more as I recall. If the first additional 20% generated positive net returns, and the next 20% generated negative net returns, then it might appear that the whole extra 40% had close-to-zero impact. We don’t know how a hypothetical third group receiving an intermediate amount of care would have fared; they might have done better than both groups. (If the RAND study did look at more than two groups, I haven’t heard about it.)
3. There are health outcomes that aren’t captured in standard health indicators like mortality and disability. Inconvenience and discomfort, for instance. Say that patient A and patient B had the same irritating skin rash. In both cases, the rash would have gone away on its own after a month, but patient A went to the doctor and got a treatment that made the rash clear up in a week. At the end of the year, patients A and B might well have the same measured health outcomes. But that doesn’t mean A’s additional treatment had zero marginal benefit.
Monday, December 10, 2007
Moore Propaganda
I finally got around to watching Michael Moore’s “SiCKO” last week. I know I’m coming rather late to the movie review party, so I’ll keep my reactions brief. What irked me most about the movie was its blatant cherry-picking. When reporting on healthcare in the United States, Moore exclusively featured people who had had terrible experiences with the medical system. Not one American with a favorable experience appeared in the movie. On the other hand, when reporting on healthcare in other countries (the U.K., France, Canada, and Cuba), Moore exclusively featured people who had had good experiences with the medical system. Not a single person with a bad experience in one of these countries appeared in the film.
Whatever you think about the relative merits of different healthcare systems, it should be obvious that every system will have some unhappy outcomes. Healthcare is costly, and that means there will always be trade-offs. Some of those trade-offs will be painful, even cruel. To pick just one example, “SiCKO” features a couple with a deaf son; their insurance company said it would fund only one cochlear implant. Their coverage would only save the kid’s hearing in one ear. Okay, now that’s awful. But do things like this happen only in the United States? On the contrary, the U.K.’s National Health Service will only save your eyesight in one eye. These situations strike me as highly comparable. Michael Moore documented the former but not the latter. Gee, I wonder why.
Friday, December 07, 2007
Klein on the Individual Health Insurance Mandate
Ezra Klein has a blog post entitled, “Why Health Insurance Isn’t Like Auto Insurance,” but it’s really about why a health insurance mandate isn’t like an auto insurance mandate. Megan McArdle has some relevant reactions here, but I have a few more.
1) You Can Drive Without Swiping Your Auto Insurance: This is the most obvious, and most important, difference. If your car required proof of insurance to start, more people would be insured. But it doesn't. Cops don't even ask for insurance when they pull you over. The only time insurance is relevant is when you're in an accident.Under a health insurance mandate, will doctors be required to deny you care if you fail to enroll in a health insurance plan? Will emergency rooms turn you away if you have no insurance card? Right now, public ERs are legally prohibited from turning people away, and that’s part of the reason we have free-riders (and free-riding is, of course, the main problem the mandate is supposed to solve). I seriously doubt we have the political will to deny care to people who haven’t complied with the mandate, because if we did, then free-riding would already be a non-issue. (It’s actually not a big issue, as I’ve argued before, but it is nonetheless the leading justification for mandated insurance.)
Health insurance mandates, by contrast, make proof of insurance a prerequisite to using the system. To see a doctor, you do have to swipe your insurance card. To enter a hospital, you do need to show proof of insurance. If you can't, you'll be enrolled in the basic plan. This alone will reduce noncompliance dramatically, because compliance will be necessary to use the health system. Auto insurance, by contrast, is not necessary to use a car. In the Edwards plan, you'll need to enter your policy number on your tax form.
As for automatically enrolling people in the “basic plan,” how will they be paid for? If automatic enrollees are automatically covered by state subsidies, then it’s clearly not the mandate that’s doing the work of increasing coverage, it’s the subsidy.
2) Car accidents are less likely than flus: Everybody reading this has been to the doctor. Most reading this have never been in a car accident. People are not unaware of the relative rarity of those events. It's easy to skip car insurance under the theory that you will not need it. It will be harder to skip health insurance under the theory that you will not need it.In other words, the mandate is self-enforcing because people know they need insurance anyway. If that were true, then they’d be buying health insurance right now, without the mandate. The problem, of course, is that some people can’t afford it, and others don’t believe they need it. “Wait, of course they need it! Everyone gets the flu, right?” But the flu isn’t what breaks the bank. You don’t really need insurance to get the care you need for the flu. You need health insurance for major health expenditures – which are about as likely for many people as a car accident.
3) We do not subsidize auto insurance: At least so far as I know. By contrast, all of the major Democrats, including Obama, subsidize health insurance to 300 percent or 400 percent of the poverty line. If lower income folks were given help on auto insurance, more would purchase it. As it is, they will be given help on health insurance, and so more will purchase it.So once again, it’s not the mandate doing the work, it’s the subsidy. You could keep the subsidy and ditch the mandate, and Ezra’s argument would still work. Subsidies aren’t a terrible idea, but let’s not pretend they “solve” the free-rider problem. We just end up paying for the free-riders in a different way.
This isn't rocket science. It's also one of the useful things about a mandate: The very fact of its universality means a hue and a cry will go up if the government doesn't ensure affordability. Thus, the government has to ensure affordability, or publicly dismantle its mandate. My hunch is it will do the former.Ahh, so here’s the reason to support a mandate: it won’t actually make healthcare or health insurance any more affordable, but it will get people good and pissed off, and so they’ll demand that politicians do something. Like what? Well, that’s the whole healthcare debate, isn’t it? If we really knew the answer to that question and could agree upon it, then we’d do that instead and forgo the mandate.
In any case, people are already angry that healthcare isn’t more affordable. How will the mandate add to their anger? If we started fining people or throwing them in jail for failure to buy health insurance, I’ll bet that would get them mighty steamed. Is that what the mandate advocates have in mind? Because otherwise, I suspect their attitude won’t change much.
The model of political behavior here is really just incredibly naïve. The idea is that if the people create a ruckus, then politicians will not merely do something, but do something smart. Good luck.
For a better model of political behavior, look to public choice theory. The mandate will create a huge incentive for special interests to make sure the “basic plan” covers everything possible, and that will tend to increase premiums. The anger about that might well create greater momentum toward implementing a single-payer system – which is what Ezra wants anyway. So in that sense, Klein’s argument makes sense, but only in a things-must-get-worse-to-get-better kind of way, and only if you actually think single-payer is a good idea.
Wednesday, November 07, 2007
WHO's Watching Over You
I recently finished writing a draft of an article bringing together my previous criticisms of the WHO healthcare rankings. I’m not sure how soon the article will see the light of day, so I want to share a piece that doesn’t appear in previous blog posts:
The WHO rankings, by purporting to measure the efficacy of healthcare systems, implicitly takes all differences in health outcomes not explained by spending or literacy and attributes them entirely to healthcare system performance. Nothing else, from tobacco use to nutrition to sheer luck, is taken into account.
To some extent, the exclusion of other variables is simply the result of inadequacies in the data. It is difficult to get information on all relevant factors, and even more difficult to account for their expected effects on health. But some factors are deliberately excluded by the WHO analysis, on the basis of paternalistic assumptions about the proper role of health systems. An earlier paper laying out the WHO methodological framework asserts, “Problems such as tobacco consumption, diet, and unsafe sexual activity must be included in an assessment of health system performance.”
In other words, the WHO approach holds health systems responsible not just for treating lung cancer, but for preventing smoking in the first place; not just for treating heart disease, but for getting people to exercise and lay off the fatty foods.
This approach is problematic for two primary reasons. First, it does not adequately account for factors that are simply beyond the control of a health system. If the culture has a predilection for unhealthy foods, there may be little healthcare providers can do about it; and if the culture has a pre-existing preference for healthy foods, the healthcare system hardly deserves the credit. (Notice the strong ranking of Japan, known for its healthy national diet.) And it hardly makes sense to hold the health system accountable for the homicide rate. Is it reasonable to consider the police force a branch of the health system?
Second, the WHO approach fails to consider people’s willingness to trade off health against other values. Some people are happy to give up a few potential months or even years of life in exchange for the pleasures of smoking, eating, having sex, playing sports, and so on. The WHO approach, rather than taking the public’s preferences as given, deems some preferences better than others (and then praises or blames the health system for them). By doing so, it abandons its claim to objectivity.
Wednesday, October 24, 2007
How to Score
This post will seem frivolous at first. It’s not. Wait for the punchline.
Suppose John Doe cares about two things in a woman: looks and personality. Moreover, he says these characteristics are equally important to him (that is, he places 50% weight on looks, 50% weight on personality).
The World Mating Association (WMA) would like to create a ranking of women according to John’s preferences. So the WMA assembles a group of women and marches them in front of John, and he scores each woman’s looks on a scale from 0 to 10. Then he interacts with each woman (from behind a screen, if you insist) and scores each woman’s personality on a scale from 0 to 10.
The scores John gives for looks range all over the map, from 0 to 10, while the scores he gives for personality are bunched together in the 6 to 8 range. (Maybe John is a relatively tolerant guy when it comes to personality, though he doesn’t think anyone is super-fantastic.)
To calculate composite scores, the WMA decides to rescale the personality scores. It calculates each woman’s personality score as follows: personality = 10 x (raw score – 6) / (8 – 6). In other words, it measures a woman’s score as the percentage of the distance between the lowest-scoring and highest-scoring women. A woman John gave a 7 would be rescaled to a 5, because she’s halfway between 6 and 8. A woman he gave a 6 would now be a 0, and a woman he gave an 8 would now be a 10.
Once the personality scores have been rescaled, the WMA computes each woman’s composite score by computing the weighted average of the scores, using the weights John provided (50% and 50%).
Does this method make sense? Well, let’s see. Take two women, Alma and Betsy. Alma got a 9 on looks and a 6 (now rescaled to 0) on personality. Betsy got a 6 on looks and a 7 (now rescaled to 5) on personality. So Alma’s and Betsy’s composite scores are 4.5 and 5.5 respectively. Betsy wins!
“But wait a minute,” John objects. “I said looks and personality were equally important to me. Alma’s three whole points better looking than Betsy. And while her personality is not quite as nice, it’s not that different. I thought they were both nice enough. All things considered, I’d give Alma a 7.5 and Betsy a 6.5. What I’m trying to say is, I like Alma better!”
The problem, obviously, is the rescaling. John said personality matters just as much as looks to him – but fortunately for him, he likes most women’s personalities. The WMA’s approach exaggerated the significance of personality to John by treating women whose personalities he liked somewhat (6’s) as women he didn’t like at all, and women whose personalities he liked a lot (8’s) as women he thought were flawless.
Okay, so the WMA’s approach is clearly flawed. The punchline is that the method I’ve just described is the method the World Health Organization (WHO) used to make its composite scores of healthcare system performance. These are the scores used to create the widely-cited rankings of nations’ healthcare systems.
As I’ve noted in previous posts, the WHO method calculates performance as an index of five different factors (such as health level, health responsiveness, and financial fairness). Some of these factors arguably shouldn’t be included at all, but set that aside. In order to assign weights to these five factors, they conducted a survey of “health experts” about their relative importance. This is equivalent to asking John the importance he attaches to looks and personality. Assume, for the sake of argument, that the resulting weights are sensible.
Nevertheless, the resulting composite scores are not sensible. Because the five component factors were measured on different scales to begin with, the WHO researchers had no choice but to scale them to make them comparable. When they scaled them, they used the approach described above: they measured a country’s factor score as the percentage of the distance between the lowest-scoring and highest-scoring countries for that factor.
As a result, a factor could have an exaggerated effect on the composite health performance scores if the raw scores for that factor were bunched more tightly than were other factors. If, for instance, if financial fairness ranged from 0.5 to 10.0 on the fairness scale, countries with fairness of 0.5 would be treated as having a fairness of 0. Essentially, a country that is somewhat fair would get treated as not fair at all. (This is assuming the raw fairness measure is meaningful to begin with, which I suspect it is not.)
How would fixing this problem affect the WHO rankings? Honestly, I don’t know. In fact, there may be no objective answer to that question. Since the five factors are on different scales, some rescaling is unavoidable. But as soon as you rescale, the meaning of factor weights is questionable at best. What if John had said he cared equally about two things in women – body mass index (BMI) and intelligence (IQ)? What would it even mean to give equal weight to BMI points and IQ points? Any rescaling of BMI and IQ to make them “comparable,” e.g., by using the range or standard deviation, would unavoidably be affected by the relative dispersion of women on these two scales. Unless John could tell us which BMIs were equivalent to which IQs, John’s 50-50 weighting could be swamped by differences in dispersion that John may know nothing about. The same is true of the factor weights used to construct the WHO healthcare rankings.
Tuesday, October 09, 2007
Left-Wingers on the Individual Mandate
The leftosphere seems evenly split between those who oppose the individual mandate because it's not single-payer, and those who favor it as another brick on the road to single-payer.
Yeesh.
Given the special-interest pressures that are the Achilles' heel of the individual mandate (and for that matter, the status quo), I do wonder what a single-payer system would look like in the U.S. I suspect it would have a rather different set of problems here than in countries that already have it. Special interests are a problem in any representative democracy, but the American system seems especially prone to cultivating them (though I don't say this with great confidence; unions seem especially powerful in other industrialized nations). In any case, in the inevitable trade-off between bloated expenditures and rationing-by-waiting, existing single-payer systems have generally chosen the latter. But I wouldn't be surprised if the U.S. went the other way, making even more healthcare available to everyone, paying munificent salaries to politically influential special interest groups in the medical field, and spending an even more outrageous amount of money on healthcare than we do now.
Monday, October 08, 2007
Individual Mandate Responses
My Business Week op-ed has gotten a number of interesting blog reactions. For now, I’ll just respond to two. First, I think Megan McArdle’s position (responding to Tyler’s question) is fairly representative of free-market-ish types who support individual mandates:
The object, as I see it, is to force the people who care about things like legality to get insurance rather than rolling the dice. The people who don't care about such things will continue costing us some fraction of the small amount that caring for the uninsured currently costs us now. It may only be a slight improvement, but it's still an improvement.Or to put it even more briefly, “If we can get even just a few free-riders to pay for themselves, that’s still better than nothing.” I sympathize with this perspective, but I think it pays insufficient attention to political dynamics. The argument against the individual mandate is not merely that it will produce relatively small benefits; it’s that it will tend to drive costs up, once special interests have their way with the “minimum” benefits package. Once package-packing sets in, insurance premiums will assuredly rise – and that will exacerbate current problems.
Second, Jonathan Cohn thinks I’ve been somewhat unfair to individual-mandate advocates like Clinton and Edwards, whose reform plans include other components designed to address cost issues:
Where Whitman, and Josh [Patashnik], go awry is in suggesting that individual mandate advocates like Clinton or Edwards pretend otherwise. Both recognize it will take additional money to cover the uninsured, at least over the short term. How do I know that? Because Clinton and Edwards (like Obama) have identified separate funding streams that they would use to finance universal coverage -- starting with the Bush upper-income tax cuts, which they would allow to expire. … And that's not the only additional funding they have in mind. Remember how Whitman chided reformers because they didn't "focus on reducing health-care prices and insurance premiums"? Well, both Clinton and Edwards -- and, again, Obama -- have proposed doing precisely that. The difference is that the Democrats running for president don't attack prices the way Whitman would prefer.Cohn is right that the candidates have also proposed a variety of other reforms, so they don't expect the mandate to do all the work. Rather than picking on one politician and covering all points of that person’s reform plan, I chose to focus on one popular component (the individual mandate) shared by many different politicians’ plans. It’s certainly worthwhile to consider the many other components of their plans, especially when issues of interdependence loom, but that just wasn’t my goal in this particular piece.
In both the op-ed and the longer piece for Cato Policy Report, on which the op-ed was based, I did briefly address the public subsidies proposed by Clinton and Edwards (which would be financed by the additional tax revenue Cohn mentions). My main point was that such subsidies don’t “solve” the free-rider problem; they just force us to pay for the free-riders in a different way. Subsidies don’t reduce costs, and they reduce prices only to the their recipients. Indeed, the rest of us will probably end up paying more, given the package-packing effect of individual mandate.
In the longer piece, I also addressed a couple of other reforms that often accompany the individual mandate: community rating and employer mandates. Both of these are bad ideas, whether independently or in conjunction with an individual mandate.