Wednesday, September 13, 2017


Sometimes the blog posts write themselves from contrasting newspaper headlines.

New York Times

New Gene-Therapy Treatments Will Carry Whopping Price Tags
By GINA KOLATA September 11, 2017

Emily Whitehead, the first pediatric patient to receive the gene-therapy treatment Kymriah, which put her leukemia into remission. The treatment has a $475,000 price tag, raising questions about how patients and insurers will pay. ...
One drug, to prevent blindness in those with a rare genetic disease, for example, is expected to cost between $700,000 and $900,000 per patient on average,..

Washington Post

The dam is breaking on Democrats’ embrace of single-payer
By Aaron Blake September 12 at 9:39 AM

Sen. Cory Booker (D-N.J.) became the fourth co-sponsor of Sen. Bernie Sanders's (I-Vt.) “Medicare for all” health-care bill Monday. In doing so, he joined Sens. Elizabeth Warren (D-Mass.) and Kamala D. Harris (D-Calif.). 
What do those four senators have in common? Well, they just happen to constitute four of the eight most likely 2020 Democratic presidential nominees, according to the handy list I put out Friday. 
Update: Gillibrand just signed on to Sanders's "Medicare for all" bill. So now 5 of my top 8 potential 2020 Democratic nominees have now come out for the bill -- before it is even introduced. "Health care should be a right, not a privilege, so I will be joining Senator Bernie Sanders as a cosponsor on his Medicare-for-All legislation," Gillibrand said.
Hint. Budget constraints? Hint 2: get ready to start making lots of noise if you want treatment.

By the way, let us watch for the crucial buzzword question. Does "single payer" mean there is a single payer that anyone can use -- but you're free to buy and sell your own insurance on top of that, hopefully deregulated since there is no need to regulate anymore, everyone has access to medicare for all? Or does "single payer" mean there is a single payer that everyone must use -- private insurance, private practice, just paying cash illegal, to cross-subsidize the system? I fear the latter. We'll see.

The previous champion was stories on the same page in WSJ, roughly ``self driving trucks coming soon'' and ``shortage of truck drivers.'' I lost the link.


  1. Administrative costs are 25% in US, mostly labor costs for medical billing. Having one system rather than hundreds could free up resources for more meaningful activities.

    1. Imagine how much resources we could save if we just had one tax.

    2. To Unknown, What is your source of information for that?

    3. Does this argument extend to having a single firm, private or public, providing each good? I'm sure administrative costs are quite high for them too.

    4. Unknown: how do you know for sure that a single payer system, run by the government at whatever level, will have lower administrative costs? How do you know that politicians will not use that system for political purposes and explode those costs in the future? How do you know that politicians will not come to taxpayers in the future asking for more and more and more and even more taxpayer money, because those costs are not enough to fund the system (hint: look at the cost explosion of Medicaid and Medicare over the last 50 years)? How do you know that politicians will be able to say NO to more and more money thrown to the single payer system (hint: see Henry Aaron's book "Can We Say No?")?
      Just food for thought.

    5. OP here. Sorry about the "unknown" identity, I thought I made it public. Here is one recent article in NEJM which references this:

      Other stuff in Health Affairs says the same thing. Or you could just talk to a primary care doctor. Walk into the doctor's office. Lots of people being paid to push paper around. Google "upcoding" as an example of why this is an issue.

      Here is one more radical way to deal with it, which isn't single payer:

    6. Yes, there are something like 2.5 claims administrators for every doctor. But it is amazing that any American thinks that the government fully taking over an industry is the answer to LESS red tape. Most of the huge administrative burden is there to comply with tens of thousands of pages of regulation, and is supported by the existing restrictions on competition. The alternative is not status quo vs. single payer. There is also a radically freer market, with the government providing financial support via voucher.

    7. Read my paper. I'm actually not advocating single payer, just pointing to some evidence that single payer countries have lower administrative costs. I'm advocating a third alternate for the most common parts of the cost curve. Debit-card payment for 50-70% of cost curve could help. Most all providers have the IT infrastructure to do it. Folks just need to work around the reality that most Americans live paycheck-to-paycheck and stop living the fantasy that they are magically going to become savers overnight. It is an option that hasn't been considered.

    8. Administrative costs are, in my view, far from the central issue with "single payer," meaning one large government run health insurance and health provider system, with private provision and insurance outside the system severely limited. The actual costs, quality, and innovation of care are the big issues.

    9. Market forces in healthcare are a hornet's nest.Insurance is the issue. The third-party-payer issue is the elephant in the room. Insurance is a horribly inefficient way to pay for anything. The idea I proposed (and desk rejected at NEJM, Health Affairs, JAMA) is based off Pauly's early (1978) critique of Arrow (foundation of health economics). Not many citation, but he looks at the assumption of information asymmetry. If you add loans to the funding mix and couple it with the idea that information technology (IT) reduces transaction costs (tens of trillions in wealth created by IT firms because transaction costs are a big deal)...put that get a new novel model. Give it a look. I do IT work, that industry is littered with big ideas that came out of nowhere because VCs listen to everyone. Economics...kinda hard to get a seat at the table if you don't have an affiliation with a top-5 school.

    10. "Administrative costs are 25% in US, mostly labor costs for medical billing. Having one system rather than hundreds could free up resources for more meaningful activities."

      'Single payer' is not the same thing as 'single provider' (as in Britain's NHS). With single payer, all of the existing providers would remain, and they'd all bill the government system as they do with Medicaid and Medicare now. There's no reason to expect the medical bill coding to be simpler, nor for providers to stop pushing 'creative coding' to its legal boundaries (and some beyond), nor any reason to expect the government not to have to spend a lot of administration dollars to control all this and catch the outright cheaters. When it comes to administration complexity, single-payer wouldn't solve anything.

  2. A joke I saw recently looks forward to a country and western song about being left by one's driverless truck

  3. What I've found interesting is how health insurance is in many ways the same as in the past but with more bureaucracy.

    In the past one could buy catastrophic health insurance. Everyday costs (physical, routine prescriptions, simple doctor visits) were paid out of pocket. High costs (surgery, etc) were covered by the catastrophic care plan. This type of health insurance follows the traditional model of insurance, covering unexpected medical events.

    Today we have high deductible health insurance which describes most health plans today. Insurance has to cover some preventative care (which it didn't in the past) but otherwise these look a lot like catastrophic care plans, only paying for costs above some high initial amount, with the addition that every health related expense has to be processed by insurance and out of pocket costs are passed though a Health Savings Account to give them pretax status.

    One would almost think there was a medical billing union which had successfully lobbied for guaranteed employment for its members.

    1. ICD-9 = 17,000 codes. ICD-10 = 155,000 codes. Membership in the American Academy of Professional Coders is more than 170,000 today from around 70,000 in 2008. Transaction costs: hard to model, but sometimes very important. BTW...selling insurance across state lines will make this worse, not better. Primary care docs already have way too many plans to manage, each with its own fee schedule and documentation. Multiple by 50...ugh.

  4. There's a Canadian in my bike club who explained their system during a talk about their trip over the trans-Labrador highway. We may have to pay C$20 for a six-pack of Molsons, but by God, we've got free healthcare.

  5. The public may want national health insurance. They do In Israel, Great Britain, Canada etc.

    I think the right-wing, through hypocrisy, is breeding acceptance for national health insurance.

    Where are the calls for free markets in property development? To end criminalization of push-cart vending? End all rural subsides? Delicense lawyers?

    And the federal tax code is a joke, especially as enforced.

    So, the message is clear: "Free markets are good when we say so, and you losers pay the taxes."

    The public wants free health care? Who can blame them?

    1. "Where are the calls for free markets in property development? To end criminalization of push-cart vending? End all rural subsides? Delicense lawyers? " You will find them all over the Cato and Hoover websites. Doctor, educate thyself before accusing others of hypocrisy.

    2. The doctor has something of a point here. Furious handwaving about "free markets" without thinking through the details is problematic. The several decades of research on health economics is primarily about how how the most basic assumptions about how markets and organizations work are violated in a very fundamental way. Such as, who is the customer in healthcare? In nearly any other industry, this is a given. In healthcare, it is not. So we use terms like "patient" and "payer", but this masks deep fundamental problems. Free entry and exit? No thanks. I want to know my physician passed organic chemistry. Normally lower prices are better, but try selling discount brain surgery. These are fundamental problems. A little more non-obvious is the issue of information diffusion with healthcare. Massive literature to keep up with. A lot of case studies/small sample sizes in the procedure literature because there are no property rights for inventing medical you get something like the SAV problem that Jack Wennberg and the folks at Dartmouth have been illustrating since the 1970s.

      More to the example you gave above, price controls are normally bad...but, if every other country has just means the rest of the rich world is mooching off the US. Americans don't need to subsidize drug R&D for Norway. Simple solution: have a list to 15-20 or so rich countries. The maximum price in the US is some function (i.e. mean, median, weighted average, 1.5 times mean, etc.) of what the price is in other rich countries.

      The point is that hand waving "free markets" doesn't cut it. We just saw what the vote on that looks like. It sounds great until you think of 50M humans without health insurance. Details matter and human lives are at stake. Suggest something novel.

    3. Where does he have a point? John pointed out that his claim about picking-and-choosing is simply wrong --- making straw men arguments that have nothing to do with Cole's claim doesn't change that.

      In any event, the supposedly-unique features of medicine you cite are common to all expert-service markets. Medicine is unique only insofar as (i) the complete shambles that's been made of it and (ii) the rents that have been extracted as a result.

    4. Matthew Wimble:

      "Discount brain surgery" is exactly what we have today, except it's the payer (insurance, government) specifying the discount rather than the provider offering it. Though many doctors do offer discounted or free services for those in need.

    5. John Cochrane:

      Sorry, I am no doctor, just a guy with a masters. A few decades old too.

      I read Cato, Cafe Hayek, Hoovers, Coyote Blog others, and agree with much.

      But try this: Google "decriminalize push-cart vending" or many versions thereof. You will come up with nothing.

      Then Google "eliminate the minimum wage" and versions thereof.

      It is 10,000 to one---"libertarians" are obsessed with the minimum wage and rent control, but go mute on property zoning and decriminalizing pushcart, motorcycle-sidecar and truck-vending.

      Try this, since are a (well-deserveed) name economist: Next time you see an op-ed decrying rent control or minimum wage, write and ask if the city in question has property zoning that restricts new housing development. Or prevent people from working for themselves by criminalizing push-cart vending.

      Incredibly, there are many "against" rent control, who never mention the ground rules---that new housing development is restricted.

      Sure, there are a left-wingers opposing property development. But visit Orange County, CA. GOP territory and ferociously controls new development.

      Many property owners perceive zoning as preserving the value of their properties. They tend to be right-wing.

      I can assure you, American "libertarians" and free-market types are not interested in wiping out property zoning and decriminalizing push-cart vending.

      Here is a great topic for you: You dislike the income tax. I dislike the income tax. I dislike taxes on productive behavior including payroll taxes.

      Why not national property taxes instead?

    6. Your cart vending example is flawed. I don't see why anyone should have the right to sell things on the street. The street is public property, as such the public can determine what can and cant be done. Just like people don't have the right to go naked on the street, because they don't own it. Or better said, they own it together with the rest of the public. Anyone can do cart vending inside his own property, like you can go naked inside your house. Also, why should a store pay property taxes if its competitors can sell on the street. Cart vending is not a natural right.

    7. Try traveling. In many nations, the streets and sidewalks thrive and pulse with vendors.

      I concede, if push-cart vending become too popular, then some sort of regulations might be necessary. It would be akin to the "public airwaves." The FCC regulated uses of airwaves, as there was limited bandwidth.

      So, to be a push-cart vendor, you must have a license, and restrict the size of your push-cart etc.

      But the emphasis should be to decriminalization, to opening up as many self-employment opportunities as possible. Surely John Cochrane agrees with this!

      For some reason, people say "food trucks are cool."

      But why not clothing trucks, smartphone trucks, small-appliances trucks, or anything that can be loaded on a truck and profitably sold?

      Why not?

      The real reason is property owners own retail space. They will not tolerate free enterprise that cuts the value of ground-floor retail space.

      It is sad that libertarians go mute on push-cart vending.

      You would get better prepared food at lower prices. Push-carts often have the best food as they are not selling ambiance.

      Push-cart vending increases competition, fights inflation and boost private enterprise.

      Or, you can say to people what cities say now: "If you have enough money to rent retail space, then you can sell in our city. We restrict the supply of retail space, btw."

  6. Matthew Wimble:

    "The several decades of research on health economics is primarily about how how the most basic assumptions about how markets and organizations work are violated in a very fundamental way."

    Actually, there is considerable research showing that healthcare markets do indeed function as markets: enough people do shop for care that when the consumer is the (fractional, at least) payer, prices decline precipitously (I'm referring to the CALpers joint replacement study).

    Most of the obfuscations that render healthcare markets dysfunctional are introduced by the state. We already have extensive price controls, quality controls, government-sanctioned monopolies, monopsonies, cartels, and the government accounting for half or more of the market (factoring in tax deductions and such in addition to Medicare, Medicaid, etc.) When you look at the current healthcare system and despair, you should not be thinking "look what free markets have done." You should be thinking "look what the state has done."

    "Suggest something novel."

    I agree, let's try something novel: a free market in healthcare.

    1. I don't disagree that free market principles should be used where feasible. However, this isn't the market for cucumbers. A "free market" would imply free entry and exit on the supply-side. This would mean that practicing medicine without a license would no long be a crime. Most reasonable people believe medical licensure and the concept of "doctors" is a good thing. But make no mistake, making something a crime is one of the strongest, if not the strongest, interventions a government can make. So, the point I am trying to make is to have meaningful reform you need to be specific because there are issues such as licensure or inherent problems of insurance (e.g. moral hazard, adverse selection, etc.) or information asymmetry (e.g. lemon's markets, small area variation) or the dual consume-and-produce nature of health capital (i.e. Grossman Model) or just the extremely skewed distribution of the costs or simply the fact that "customers" might not be conscious when large purchase decisions are made which are tricky to put it mildly. Citing one study doesn't cut it. Try a body of literature. Folland's health economics text is a good potential starting point. It's on like 8th edition and synthesizes thousands of studies. The model I propose above is one option. It's a short paper, 8 pages. It puts government in a facilitating, rather than dictating, role. I think it is as close as you can get to a free-market get if you acknowledge the natural peculiarities of healthcare. Have a look and keep an open mind.

  7. Bernie Sanders current notional proposition, that of “single payer” aka Medicaid for all ( it needs to be quite clear that a difference exists between benighted….and “beclowned”), has a ton of problems which he conveniently dismisses (which is the basic problem with notional propositions), of which a short list appears as follows:

    (1) it does not address the supply-side of health-care for the exception of implicit/explicit price fixing which is the base problem with single payer i.e. if price is not the rationing agent then quality, quantity, time or a combination thereof is the rationing agent,

    (2) the mantra that the USA is the only advanced industrialized nation without single payer is an argument with no arguments [Sowell]. Just because Sam owns a Cadillac, then you should as well? -Or- everybody’s time and circumstance is exactly the same (reverse of what F.A. Hayek pointed out) and hence central planning works flawlessly,

    (3) roughly 55% of health insurance is already single payer in the USA (Tri-care, Medicaid, Medicare, CHIP, etc.) with the other 45% heavily government regulated and the result is disastrous as well as the 55% portion is on the brink of bankruptcy.

    From 1930 to present, a particular ideology driven group has again and again proposed political answers to economic questions with the result being abysmal. Can you say $21 trillion of federal debt and another $7 trillion of state and local debt? How about $90 trillion of unfunded entitlements?


    “The inefficiency of political control of an economy has been demonstrated more often, in more places, and under more varied conditions, than almost anything outside the realm of pure science.” - Thomas Sowell


Comments are welcome. Keep it short, polite, and on topic.

Thanks to a few abusers I am now moderating comments. I welcome thoughtful disagreement. I will block comments with insulting or abusive language. I'm also blocking totally inane comments. Try to make some sense. I am much more likely to allow critical comments if you have the honesty and courage to use your real name.