Tuesday, November 20, 2012

Health economics update

Russ Roberts did a podcast with me in his "EconTalk" series, on my "After the ACA'' article. Russ also put together a really nice list of readings with the podcast, at the same link.

I also found this very informative editorial "What the world doesn't know about health care in America" by Scott Atlas. It goes a good way to answering the persistent "What about how great health care is in Europe" comments. Some choice quotes:
Affirming 2005’s Chaoulli v. Quebec, in which [Canadian] Supreme Court justices famously concluded “access to a waiting list is not access to health care,” [my emphasis] countless studies document grave consequences from prolonged waits...
I love this little quote, because the deliberate confusion of "insurance" with "access" has long bugged me about the US debate.

Lots and lots of things are dysfunctional about US health care, but not the long waits that others endure
...“waiting lists are not a feature in the United States,” as stated in a 2007 study and separately underscored by the OECD .
They're talking months here, not 6 hours in the ER.
Americans would be stunned to hear the reality of nationalized insurance:

• In its latest “care guarantee,” Sweden found it necessary to stipulate that patients must be able to see a doctor within seven days; patients should not wait more than 90 days to see a specialist; and treatment should be scheduled within 90 days…six months from presentation;...

• England’s 2010 “NHS Constitution” declared that no patient should wait beyond 18 weeks for treatment (after GP referral). Even given this long leash, the number of patients not being treated within that time soared by 43% to almost 30,000 in January.
How about all those wellness visits, the idea that under socialized medicine, people will get lots of cost-effective preventive care so they don't  wind up at the ER with something expensive? It turns out that's better in the US despite our chaotic system:
...treatment of diagnosed high blood pressure, the focus of preventing heart failure and stroke, was highest in the US (53%), lowest in England (25%), then Sweden and Germany (26%), Spain (27%), Italy (32%), and Canada (36%). In 2010, drug treatment was higher in the US than all European countries, including Austria, Denmark, France, Germany, Greece, Italy, Netherlands, Spain, Sweden, and Switzerland. In 2011, nearly 70% of Britons with known hypertension were left untreated.
And when you do get something serious?
Waits for diagnosis and treatment of heart disease, the leading cause of death in the US and Europe, plague nationalized health systems. OECD reported delays of several weeks to months for treatment in Australia, Canada, Finland, England, Norway, and Spain – not including waiting for specialist appointments. In 2008-2009, the average wait for CABG (coronary artery bypass) in the UK was 57 days. Swedes waited a median of 55 days, even though 75% were “imperative” or “urgent.” Canada’s heart surgery patients wait more than 10 weeks after seeing the doctor, and two months for CABG even after cardiologist appointments. 
The obvious point: Of course, under the ACA, many new patients and "cost control" price caps, we are surely heading in the same direction: rationing by wait time.

The less obvious point: Remember all the critics I cited in "After the ACA'' painting the picture that sick people need treatment now, and can't possibly shop? That really is a misleading picture.

The bottom line
..gradually, Europeans are circumventing their systems. Half a million Swedes now use private insurance, up from 100,000 a decade ago. Almost two-thirds of Brits earning more than $78,700 have done the same. But what might really surprise those who assert the excellence of nationalized insurance systems is that throughout Europe, from Britain to Denmark to Sweden, when faced with their inability to deliver timely access, the government’s solution is increasingly to enable access to private health care.
I don't know enough about European "private health insurance" to know how it works. Individual, private health insurance is so screwed up in this country that it's not clear we will have this option.  And, the point of After the ACA, paying with your own money doesn't do much good if there is not a competitive market supplying health services.


  1. The real ugly part of this, though, is that ACA advocates like to say that "every system rations, it's just a question of how." These folks think it's just fine to "ration with waiting lists" because the pre-ACA system "rationed with price." There is some kind of rhetorical block they have that prevents them from seeing that 50 days is the difference between life and death, and that the 50 days applies to ALL, not just to the poor who otherwise couldn't afford health care.

    What's scary is that they seem to think it's okay for some of us to die in order to force everyone into a system that purports to be more humane. Making this point simply adds fuel to their argument: "People already die."

    Sadly, I don't think they will be convinced until they live the horrors of universal health care for a while. And by that point, the debate will be about whether or not to increase funding, rather than whether or not to privatize. The whole debate about the ACA is probably a lost cause at this point.

  2. If waiting lists turn out to be a problem, and I will agree there is a good chance that they will be, then there is no reason we can't come up with new policies to solve the problem.

    Of course this implies that we would need to rely on our government officials to come up with effective and efficient policy.

    The ACA is the foundation of a new system that is going to be continuously molded to our country's needs. Much like any other program around today, it's a mean to an end.

    1. "there is no reason we can't come up with new policies to solve the problem"

      "we would need to rely on our government officials to come up with effective and efficient policy"

      Anyone else see the irony here?

    2. "effective and efficient" like the USPS service? Or is this like Dr. Johnson's quip about second marrages; the trumph of hope over experence.

    3. “Effective and efficient” Government Policy; as an experience Government Policy I think of the USPS, since that is the part of the US Government I most often visit. Possibly Jake can share with us another part of the government which he frequents, where he has had an “Effective and efficient” Policy experience. For I fear that the government Policy experience will be doing the molding of us, as they do in the USPS, and not the other way around.

    4. Hmmm...where have I heard this argument before?

      Skinner: Well, I was wrong. The lizards are a godsend.
      Lisa: But isn't that a bit short-sighted? What happens when we're overrun by lizards?
      Skinner: No problem. We simply release wave after wave of Chinese needle snakes. They'll wipe out the lizards.
      Lisa: But aren't the snakes even worse?
      Skinner: Yes, but we're prepared for that. We've lined up a fabulous type of gorilla that thrives on snake meat.
      Lisa: But then we're stuck with gorillas!
      Skinner: No, that's the beautiful part. When wintertime rolls around, the gorillas simply freeze to death.

  3. I am a little confused by this. Of course we have faster wait times, we have fewer people with access ! I mean, if we provided insurance to only 1% of our population, then those people would have even fewer wait times

    there is no problem, as long as you provide basic coverage for all and then people can buy their own supplemental insurance. The point is not to duplicate perfectly whatever European countries do wrong, but to use the elements of their systems that work well or at least understand what those are

    1. I agree. This is exactly the reason there are shorter lines to get treated in the U.S. than in Canada: fewer people in U.S. have access to medical care. Try to get non-emergency surgery if you don't have insurance or the money to pay for it. Canada could simply raise taxes to fund their health care system better and the lines would go away. The lines in Canada are not because the system is flawed but because it is not funded enough. I am glad John mentioned Switzerland in his post. Switzerland did precisely what Obama/Romney did back in 1995 (private-based insurance backed by individual mandate). It has been working for them, so the ACA will work in the U.S. But their system is rather expensive compared to other countries.

    2. > fewer people in U.S. have access to medical care

      This is counter-factual actually.

      > Try to get non-emergency surgery if you don't have insurance or the money to pay for it.

      How do you know you need this non-emergency surgery if you don't have insurance or can't borrow money to pay for it?

    3. > you provide basic coverage for all

      It's unclear you are these "you" who will provide basic coverage for "all".

      Second, basic coverage is vague. There are no constraints that would prevent its expansion onto not so basic coverage under the pressure of vote-buying politicians and of the public trying to offload their health maintenance expenses onto somebody else.

    4. "I am a little confused by this. Of course we have faster wait times, we have fewer people with access ! I mean, if we provided insurance to only 1% of our population, then those people would have even fewer wait times"

      I don't know how good of a measure this is but just for fun I looked into this... number of doctors/hospital beds per 1000 people:

      Canada 1.91/3.4
      UK 2.29/3.9
      Italy 3.65/4
      Germany 3.45/8.3
      France 3.28/7.3
      Sweden 3.24/NA
      Spain 3.23/3.4

      USA 2.59/3.2

      Considering that only about 85% of the US population has insurance the figures above in terms of insured people become:

      USA 3.05/3.76

      In either case, it does not seem that the concern you expressed has a factual basis (at least along this dimension)

  4. Enjoyed the podcast with Russ Roberts... really really good stuff. I will check out the paper.

    1. Wow Greg. Super interesting comment. Immensely gratifying to read such a thought provoking sentence.

  5. My bet is that after Obamacare is fully implemented fewer Americans will have comprehensive health insurance than was the case before 2008.

    Insurance companies will have to jack premiums up because only the truly sick will buy insurance.

    Employers will stay under 50 employees, limit new hires to less than 30hrs/week, or just pay the fine.

    Individuals will pay the fine or just cheat to avoid it, as either method will be cheaper than buying insurance.

    The insurance exchanges will be electronic clusterf****s that will not be able to do anything.

    States will balk at expanding Medicaid because even 20% is more than they have.

    Get me a cold one from the fridge and put some popcorn in the microwave, this is going to be fun.

  6. How about a dose of cold hard reality?


  7. Right, because we see a lot of success with competitive health insurance markets? Because, theoretically, health insurance markets aren't expected to result in market failure? Right.

    As other commenters pointed out, we have less people, so it's silly to compare without controlling for factors such as these (and age, racial make-up, income, gini, etc idk - I'm not an economist). I'm pretty skeptical of all of these uncontrolled metrics.

    You're also forgetting that the whole point of a "European system" is to avoid ability-to-pay style healthcare. Healthcare is a right, not a privilege in some of these nations.

    And there are other ways to ration:


    1. My understanding is that private health insurers have profit margins in a modest 3-4% range. Does that look like a market failure to you?

      We may want healthcare to be a right, but that doesn't change the reality of having to figure out how best to allocate limited resources. The market provides a mechanism for rationalizing costs and maximizing gains. How do you expect to achieve that through the political process? Here's an example: If you had a million dollars to spend, would you spend it on an operation that gives a person a 30% chance of living an extra year? Or would you spend it improving school lunches in a way that will increase the combined life expectancy of the students by 100 years? If we leave those kinds of decisions to a "panel of experts," how can we realistically expect to insulate that panel from political pressures?

      No matter what your risk profile is, there is a cost to insure you. Insurers are very good at calculating that cost, finding ways to lower that cost, and then offering insurance very near that cost (with competitive pressures keeping profits down). Obviously for some people the cost of insuring them is far higher than they could reasonably pay, and as a caring society we try to do something to help those people. Something like the ACA tries to address the problem by capping premium differentials so that the insurers can only rationalize costs through a system of cross-subsidies. The problem with that system is that you can't induce healthy individuals to take a bad deal and subsidize the unhealthy, so you end up driving them out of the pool. What we should do instead is let insurers figure out the correct prices and then directly subsidize the people who cannot afford insurance either because they are too poor or because their risk profile is too high. Rather than screw up the whole market, let the market work and then give vouchers to those who fall through the cracks. And if we really want to do something about the cost of healthcare, we need deregulation.

    2. Kevin: the problem with this is adverse selection: if you have a market based system plus subsidies for those who fall through the cracks, then it's very easy to game it: you don't buy insurance until you get sick. Hence the mandates in ACA. Now, John claims that nowadays technology available to insurers make adverse selection much less of an issue in health care. I think he's being way too unrealistic.

    3. "No matter what your risk profile is, there is a cost to insure you. Insurers are very good at calculating that cost, finding ways to lower that cost, and then offering insurance very near that cost (with competitive pressures keeping profits down)."

      That's awfully generous of you. Yes, I have more faith in panels than insurers:


      Rationing care can be done more effectively with true cost/benefit analysis. It trumps "ability to pay" nonsense. The profit motive isn't superior to political pressure when it comes to providing insurance and paying for care.

      Isn't a subsidy for paying in and a penalty for not economically the same? The above comment explicitly makes the point I was alluding to in my initial point.

  8. Everyone has access to healthcare in America through the ER. Thus, it seems erroneous to suggest that the longer wait times in socialized countries are because they have more citizens covered. What am I missing?

    1. ER care is not health care. It's designed to temporarily stabilize the patient, nothing more. The way it's done in the U.S. is terrible because it is an unfunded mandate for private businesses ( hospitals ) to lose money on customers who can't pay for services. Can you imagine a mandate like that for computer makers or tv makers ?

      I don't see anything wrong with long wait times as long as you have an option to purchase private care for additional money. If you want full care for "free", you may have to wait. That is a reasonable tradeoff.

    2. ER care is most certainly health care. If you're sick and you go to the ER one of two things will happen:

      1. if you're not very sick they will take care of the current issue and send you on your way.

      2. if you are very sick, you will be admitted to the hospital for treatment

      That's true regardless of your insurance status. And it's not hospitals that necessarily pick up the tab for the uninsured. Those costs are shared by individuals who pay higher premiums and insurers who pay higher rates.

  9. I would postulate that the reason for the relatively long waiting times in nationalized healthcare systems is not only the fact that there are more persons having access to care, but that those persons who do have access use it more frequently (and frivolously). If one is not paying, or not paying much, for those visits, they do tend to become more frequent. Thus, non-essential use of medical services likely crowds out necessary care to some extent.

    It has been a casual observation of mine that the lines at "all you can eat" buffets tend to be longer than those where the amount consumed is limited by price.

  10. Nope. It's not "' What about how great health care is in Europe.'" That's you. But health care is much less costly per capita there than here and much more universal, while outcomes are similar. Scott Atlas makes many good points, but nothing he says refutes this. We need to bring costs down and expand coverage.

    The fact that we can learn from others doesn't mean we must follow them blindly. There's room for improvement everywhere. People interested in solutions will conscientiously avoid the ideological quagmire. Otherwise these earnest discussions turn out to be a lot of hot air.

  11. Are you aware of Chad Syverson's work on this? http://economics.mit.edu/files/8500

  12. There is no greedier profession than the medical profession. If doctors ran Wall Street, our economy wouldn't be in as bad a position in which it finds itself, now. Trust me, they will create efficiencies to make sure they get the maximum amount they can. Don't worry about the doctors. They're smart, hungry, and angry as hell.... Obamacare will do fine. Our system is broken. Something had to happen.


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