Sunday, February 23, 2020

Health policy wonks and the preservation of human capital

Austin Frakt at the New York Times covered an interesting survey of health economists, revealing their interesting support for the status quo  Mike Cannon at CATO has an interesting tweet storm in reaction, and Tyler Cowen at Marginal Revolution also comments.

My diagnosis comes at the end. Those whose human capital is knowledge of the current rules, and whose employment derives from the agencies who run the current system, are unlikely to challenge the status quo.

Imagine if American health policy were established by the consensus of health economists. What would the system look like? 
Health economists .. strongly reject repeal [of the ACA], with 89 percent opposing the idea.
Really, is this miserable status quo the best that thousands of professional health economists can dream up?
Various ideas to cut costs in Medicare and Medicaid have been proposed in recent years. Health economists generally oppose those changes.
A related idea for Medicare is to convert it to a voucher-based program. This would establish a set amount the government would pay for your coverage so that you could shop for a health plan. Most health economists (61 percent) also oppose this idea
Commenting Frakt notes,
It may surprise some that economists, who normally prefer market-based approaches to government programs, are so supportive of Medicare’s current structure. “Though they recognize the value of free markets, economists also believe that market failures are harmful,” the poll’s conductors told me. “In some cases, such as health insurance for the elderly, many economists think that society does best when government provides services directly.”
I may be getting jaded, but it seems no longer true that economists normally prefer market-based approaches to government programs. Especially in health. My pretty uniform experience talking to health economists is that even they say "well, the free market might be fine for apples and oranges, but health is too important to be left to the free market."  What follows is often an amazingly patronizing view of the idiocy of the average health consumer, who requires the paternalistic guidance of, well, an army of health policy economists to tell them what to do.

Still, that a large majority of PhD economists prefer the government to run a health insurance and health care system rather than just pay for one,  allowing thereby healthy competition, is still pretty astounding. That judgement seems far beyond the central point of health economics and deep in to public choice. Sadly, public choice is not a standard part of any PhD program, so most economists still rattle off the party line, there is a market failure in here somewhere so the government has to run things to provide the social optimum. 
Seventy-seven percent of health economists do not believe work requirements should be part of Medicaid.  
This is another interesting judgement, rather outside health economics. I have an acquaintance, single and able, who chooses not to work and to be an artist instead, producing art that few will pay much for. They have medicaid. It's awful. I have others who work pretty much just to have the health insurance. There are the people who spend eight hours a day stuffing our orders into boxes at Amazon, or checking out our groceries at Whole Foods, to get a bit of cash and somewhat better health insurance.  It's a lot less fun than being an unpaid artist. It would be nice if nobody had to do these unpleasant tasks and everyone could be an artist. Can we be such a society? That's an interesting question, at the eternal struggle between incentives and compassion that defines good economics. And a politically charged one. You can tell where the politics of health economists lie. 

Still, there are rays of common sense and good economics among the health economists
..only 14 percent of [health economists]favor the current tax treatment of employer-sponsored health insurance. But they’re just about the only group that feels that way. 
Health economists overwhelmingly (93 percent of them) say that if employers were to spend less on health insurance, wages and other benefits would increase. 
As blog readers know, I'm a fan of guaranteed renewable or health status insurance in place of the ban on rating for pre-existing conditions. How is this faring?
..insurers cannot raise premiums for pre-existing conditions. Health economists appear to agree with this, with 80 percent saying premiums should not be higher for those with “genetic defects” (the poll’s wording)...
But nearly 70 percent of health economists are comfortable charging people more if they engage in unhealthy behaviors that lead to higher health costs. The A.C.A. allows marketplace plans to do just that based on smoking. 
Sadly, the survey does not really get to the issue.  Genetic defects are about the hardest part of a health status scheme -- they requires that parent's health status insurance covers their children's genetic defects. Even I would consider government topping up heath status accounts or vouchering guaranteed renewable insurance for genetic defects. I wish we had a clearer question, health status or guaranteed renewability vs. community rating (all pay the same price) plus mandate (you have to buy health insurance, even if wildly overpriced for you.)  

Frakt's bottom line
If health economists were in charge of the health system, not a lot would change, with some notable exceptions. Medicaid would not have work requirements (which would be unpopular among conservatives in some states), and taxes would go up for Medicare and for employer-based health insurance (which would make it unpopular among just about everybody).
Frakt may be jumping to conclusions here. The survey did not ask about taxes, and one might suspect a majority of health economists answering the survey might think it can all be paid for by taxing "the rich" only.


Cannon gets right to the point.
“If health economists were in charge of the health system, not a lot would change,” which tells you just about all you need to know about most health economists in the United States
Health economists seem to have a lot of attachment to the status quo, which is pretty much universally reviled by everyone else. Why?

Cannon's diagnosis
there is a mountainous structural ideological-bias problem in #HealthPolicy. 
The health policy professions skew left, because federal and state health policy skew left; thus the set of individuals who select into these professions skews toward those whose ideas concern *how* government should allocate resources/regulate rather than *whether* it should.
Since the majority and the elites within these professions skew left, it is harder both to attract free-market advocates to the professions and for free-market advocates to advance within the professions.
Cannon has a point. Free market analysis has a tough time getting jobs, publishing papers, getting grants, getting tenure. Health policy is a lot like the humanities.

But I see it slightly differently. As economists, let us look first not at ideology, but at interest. Economist capture can be independent of political ideology.

To be a health economist today, you need to learn a lot about the details of the ACA, medicare and medicaid rules, health insurance regulations, and so on. If we throw all this out and start over, as any good free marketer will tell you to do -- and as a good Sanderista, single-payer will also tell you to do -- all that human capital is thrown out. You will be as relevant as the economists who studied how soviet communism worked, in 1991. You will be as relevant as a typewriter repairman when word processors take over.

Health economics is an immense industry now, much of it financed by soft money, either NIH and other government grants or private grants, funneled through an explosion of health policy "centers," not standard tenure track departments. Many health economists depend for their jobs on getting grants from government agencies that promulgate the current system to study the current system and improve it. Or, viewed more cynically, the government agencies that run the current system pay economists to support the current system. Viewed either way, good luck at getting a 3 year grant, with salary support, to study "how a voucher could replace medicare," or "how health-status insurance could obviate the need for the ACA" or "eliminate cross-subsidies with tax-supported charity care, and leave the rest of us to the free market."

The average health economist surveyed -- the average member of the American society of health economists --  is not a professor of economics at Harvard or Stanford. He or she is a grant-supported researcher at a health policy center, or directly employed by a federal government agency. From a quick bit of googling, Stanford has a center  here, a health research division in the medical school here, a health research and policy department of the medical school here, and health economics researchers at Hoover, business school, law school, SIEPR, and doubtless more.   Frakt lists his first affiliation as  "director of the Partnered Evidence-Based Policy Resource Center at the V.A. Boston Healthcare System." Cannon, a lone free-marketer, is at CATO and knows this world well.

My view is thus less ideological but perhaps more deep-rooted than Cannon's. In support, note that it is a general phenomenon, not unique to health economics.

Why do the majority of bank regulation economists largely support the general structure of the Dodd Frank act, wanting only to fiddle with regulations on the edges, and heaven forbid even thinking about replacing the whole mess with narrow deposits and equity financed banking?

Why do the majority of monetary economists support the institutional structure of the Federal Reserve, mostly supporting the actions of the top ("why does QE work?" Not "does QE work?"), fiddling with interest rate rules, and those who even think about really fundamental changes in structure in the sidelines? (Note there the large fraction of monetary economists employed directly by the Federal Reserve, its member banks, BIS, IMF, ECB, etc.)

There is nothing necessarily pernicious here. Researchers at the Fed can write pretty much anything they like. But the institutional rewards for "policy relevant" research, research that helps those at the top to manage their day to day affairs, are obviously there.

Why do antitrust or securities regulation economists sound pretty much like the health economists here, with only a few outsiders arguing that the efforts are pointless rabbit warrens?

Self-interest, for people to preserve hard-won human capital, and for institutions to support research that keeps them going, is a powerful explanatory force. Even if individuals do not respond to this incentive, and are all pure in their pursuit of ideas, selection is a powerful explanatory force. Economics is a good way to explain economics!


  1. Short version: “It is difficult to get a man to understand something, when his salary depends on his not understanding it.” Upton Sinclair

    Did you mean to say "Economics is a good way to explain economists."?


    More thoughts

    “For every complex problem there is an answer that is clear, simple and wrong.” H. L. Mencken (I think this is how most public policy works)

    "In the sphere of economics an action, a habit, an institution or a law engenders not just one effect but a series of effects. Of these effects only the first is immediate; it is revealed simultaneously with its cause, it is seen. The others merely occur successively, they are not seen; we are lucky if we foresee them." Frederic Bastiat (intellectual ancestor of Benoit Mandelbrot)

    The health care system is vast, complicated, heavily interconnected, and driven by the concept not of improving patient care but lining one's pockets. I include a significant proportion of physicians in this analysis.

    This is a nonlinear chaotic system whereby a small input in one area can cause major changes in unexpected places.

    I'm astonished that 89% of these so-called health economists oppose repeal of the ACA. That has been one of the most disastrous programs I've seen in over 40 years of practice. Perhaps instead of crunching numbers someone should talk to the patients. I've heard plenty of hate about Obamacare from patients but I'm at a loss to recall a single patient who ever told me they were grateful for Obamacare. The absolute worst choice for most people is to buy a policy on the exchange. That is a deception of epic proportions. For example, an Aetna HMO on the exchange is a different policy than the Aetna HMO you buy directly from Aetna. A doctor who has a private contract with Aetna does not automatically have a contract with the Obamacare Aetna version. I don't accept any Obamacare policies because those policies pay a pittance. A lot of people have been unpleasantly surprised to find they have insurance that no one accepts. If you're experiencing a WTF moment, you don't really understand what's going on.

    By insuring the uninsurable (high risk), the cost burden has been shifted to the lower risk demographics. The lowest risk demographic is young men, but the way Obamacare works they carry the most disproportionate financial burden. This impacts not only their ability to afford coverage, it spills over into the rest of their lives: getting married, having children, what car to buy, where to live, etc. That's part of the "What is not seen".

    You can't pull on one thread without affecting the whole sweater and possibly the entire wardrobe. Beware the policy wonks.

    1. I believe this whole mess was born out of one idealistic goal: there must be no discrimination in the amount and quality of healthcare received with regards to the ability to pay.

      our current healthcare system and its backers are unabashedly avoiding the natural conclusion that this goal is impossible without bankrupting the country.

      It's why John and others who champion the potential of free markets will never win over the ACA, because doing so would be an upfront concession that the goal is impossible. And no policymaker or politician who wants to be elected will ever touch that with a ten-foot pole.

    2. This is the sociopolitical dilemma in a nutshell. At one end of the spectrum it is repellant to consider letting poor people die in the street. On the other hand a free market is the most efficient method for price discovery.

      There is no neat tidy solution to this since they are mutually exclusive. You can't have a free market system where some participants subsidize others. Ultimately a society has to decide where it wants to be along the spectrum between these opposite poles. As the Italians say, you can't have a full barrel and a drunk wife.

    3. One option is the European option - rationing and capped prices on drugs and doctor salaries. That leads to long waits, lower discoveries of medical innovation, and potentially fewer medical professionals wanting to enter.

      Another option - mostly free market healthcare with an expansion in welfare aimed at low income individuals. They would receive comparatively worse care just as section 8 housing is a lot worse than Beverly Hills.

      The third option is where you try to have both and fail at both and end up bankrupting the country. It seems the third option is decidedly the worst of the three, but because of the vested interests and political inertia, it's the one we have. Curiously, as far as I am aware, we are the only country that has this system.

  2. It's hard not being fatalistic when you see Health Economists largely supporting the status quo, the same status quo that causes us to run permanently increasing deficits every year. How in the world can they see this plain result and think everything is fine as is?

    Aren't economists supposed to be the officious, negative nancy's at the party who spoil everybody's mood by bringing up trade offs and budget constraints?

  3. "Still, that a large majority of PhD economists prefer the government to run a health insurance and health care system rather than just pay for one, allowing thereby healthy competition, is still pretty astounding." This is the key point that we really all ought to be able to agree on. It's one thing to have a preference that we collectively pay for some basic level of care for all (in a country), but it is insane to think that the government is best able to deliver care.

  4. Academia itself is essentially entirely government run. There are market elements and competition elements to academia, but it's ultimately a part of government.

    Is it possible that government run academia have an inherent bias towards government run solutions?

    Does Dr. Cochrane support free market reforms for academia?

    1. I would be curious too. The current college system is a mess much like healthcare and has a monstrous sticker price to boot, making it one of the very worst investments if you do not finish college.

  5. It's possible this is a story of health policy experts wanting to preserve their human capital. But it's just as likely this is a "Chesterton's Fence" scenario: those of us who do not understand why the current system works the way it does are far more willing to tear it apart than those who do.

    Perhaps a work requirement is the most inefficient way to cull your artist acquaintance from the herd of Medicaid beneficiaries. Perhaps the ACA should have never been enacted in the first place but, having become entrenched over the past decade, is now like a tumor that's buried so deep removing it will kill the patient. And perhaps once the tax incentives for employer-provided insurance that started this whole mess are eliminated the rest will largely take care of itself, so while we non-experts are fretting over symptoms, the pros only want to treat the underlying disease.

    Or maybe not... I have no clue what the right answers are! The point is just that we shouldn't forget bulverism works both ways: assuming most health policy experts have been "captured" by soft grants from the NIH isn't so different from presuming Hoover has been captured by wealthy donors.

  6. Shift the focus from the demand side of medical care, i.e., insurance, government subsidies (Medicare for all, Medicaid, Medicare, ACA), and price controls, to a focus on increasing the supply of medical care providers. Lower the barriers to entry for health care providers by lowering the licensing requirements and decreasing the years of education and training it takes to become an independent medical provider. Increasing the supply of medical providers until there is an oversupply will increase competition and productivity. Do the equivalent for hospitals and health facilities. Competition and productivity will remove low quality, high price inefficient providers from the marketplace and lower the costs of medical care. Lower medical care costs will lower insurance costs because insurance is just reimbursement for the cost of the use of medical care. As medical care and hospital costs decrease through productivity, insurance premiums will decline and more people will be able to afford health care. The high cost of medical care and medical insurance is a result of a limited supply of providers and low medical care productivity.

    1. "Lower the barriers to entry for health care providers by lowering the licensing requirements and decreasing the years of education and training it takes to become an independent medical provider."

      This is insane. Lower health care costs by flooding the market with cheap low quality providers. Sounds like something the Chinese would do. Thank goodness our licensing laws would prevent them from exporting them here.

      It was the poor quality and high variability of medical training that led to the institution of medical licensing in the first place. There was a time when all you had to do was apprentice with a practicing doctor. Many medical schools were little more than diploma mills.

      The fallout of the implementation of limited work hours for residents has resulted in the release of less experienced new practitioners. A recent BMJ article found no change in outcomes in internal medicine after reducing hours worked during residency.

      However, at the end of the article they stated that this might not hold true for surgeons. Internists in training round in groups. Its possible for each participant to learn from each patient. In surgery, an individual needs to get a certain number of procedures under their belt to gain proficiency.

      When I did my internship I took call every other night - essentially 36 hours on and 12 off. It was definitely brutal but we used to joke that the real problem was that you missed half the cases that came in at night. Sadly, it was not a joke. Although I think what I went through was excessive, cutting weekly hours has definitely had an impact on surgery. It's not uncommon to hear the OR staff criticize the skills of new surgeons. In 40 years I never witnessed this until recently. The reduction in cases performed manifests itself negatively in surgery.

      As a pain specialist I've been appalled at the lack of procedural experience of fellowship grads. The required procedures and numbers for 12 months are less than a busy day for some practitioners. Some procedures, such as implantation of spinal cord stimulators or intrathecal pumps aren't even required.

      You can learn math from an online course, but you can only learn cabinet making by making cabinets.

      Lowering the barriers to entry is absolutley NOT a solution. If you want under-trained, less expensive people taking care of you see a nurse practitioner. They claim to offer the same level of care, but there are NPs who later went to medical school and were shocked to see how much they didn't know. There is simply no substitute for knowledge and experience.

    2. This is the common retort. But the converse is also true - licensing keeps the supply low and the salaries of medical professionals exorbitant. I would also note, my mother did her medical school in India and then had to pass a tremendously rigorous equivalency exam in the US to be able to practice medicine. Many of her colleagues did not pass the exam and thus never went to the US. Was an exam necessary? Sure, but we as a society need to reconcile the cost benefit axis when it comes to licensing. We don't want anyone with a phony degree practicing medicine, but do we want a world where only Harvard graduated medical students are allowed to perform surgery?

    3. The efficacy of the current educational system is assumed, rather than proven. One small example: In order to be admitted to medical school, a student must have a bachelors degree. No major is specified, although 10 courses are prescribed. In other words, 70% of the bachelors program is wasted. another example.

      Some states allow nurse practitioners to do a lot of things without a physician around. Others don't. Is any outcome based research being done on how good nurse practitioners are?

  7. Interesting study. Here is a practical viewpoint from one who has spent 40+ years in corporate employee benefits – 35+ years selecting health coverage (or consulting on/compliance with PPACA).

    After 10+ years, I too would not repeal PPACA – but only because it would likely be replaced with something more problematic.

    Perhaps consistent with the H. L. Menken quote supplied above, “For every complex problem there is an answer that is clear, simple and wrong” I say let’s try the simple, understandable alternative where society is given the burdens individuals and employers cannot readily shoulder. Can't be much worse than the status quo.

    Let individuals/employers deal with health expenses that are budgetable/manageable/insurable. Within existing PPACA requirements, on a state by state basis, each state would experiment with PPACA §1332 five-year innovation waivers and Social Security Act §1115 Medicaid waivers. The result:
    • Everyone is covered for catastrophic care (funded by premiums paid by all who are covered, including the poor and the elderly),
    • Individuals and their employers gap fill until reaching catastrophic coverage using typical/traditional, employer-sponsored coverage.
    • Medicare (as we know it) continues to apply up to the stop loss limit for those otherwise eligible for Medicare.

    More detail if you have an interest. This is a variant of a bipartisan solution once endorsed by Senators Kennedy (D-MA) and Crist (R-TN).

    My experience with rank and file Americans is that, after decades of promises, they tend to want the best health care coverage YOUR money will buy.

    I agree that we don’t need a work requirement for Medicaid - but it should never be free, those without income should be "running a tab" until they (or parents of minors) do have income/wealth.

    Health economists are overwhelmingly WRONG (93 percent of them) when they say that if employers were to spend less on health insurance, wages and other benefits would increase. Employer sponsored health coverage financial support is spread evenly, like peanut butter on soft white bread – slowly, carefully, evenly so you don’t rip the bread. When employer financial support requirements are reduced (such as where the Cadillac tax would have applied), where the layer of employer-paid peanut butter must be thinner, expect employers to allocate the difference as rewards for those with critical skills, top performers.

    You say nearly 70 percent of health economists are comfortable charging people more if they engage in unhealthy behaviors. Perhaps, but government giveth penalties with one hand (PPACA) but taketh away penalties with the other (ADA).

    You say that the proposals don't get to genetic defects - the hardest part of a health status scheme … But see simple (and perhaps wrong) solution above.

  8. In the battle of ideas within academia, free market health care loses by a landslide. PhDs are closer to Bernie Bros.

    No comments on Amazon's health care ambitions?

  9. The best healthcare ultimately comes from the private sector, even though there are a few bumps. One thing that would facilitate better healthcare & reduce cost a bit is aiming to get out of the sickcare system. More proactive approaches, screenings, reforming the FDA, getting docs to think out of the box, & for the poor, special waivers that work based on ailment in order to reduce institutionalization. Grouping plans, perhaps by profession, are the best way to distribute the costs of the premium of the group plan & be advised nothing is free in life. You get what you pay for. Single payor will not induce quality; it will prmoote waits & rationing. It removes choice. LIfestyle changes are a must. As technology grows, it is normal to realize that the better it is, there is a cost that has to be paid for. Relative to medicaid, I don't think it's vital that people on medicaid be required to work. Medicaid has many flavors. The disabled & elderly, by virtue of their status, are unable to work albeit there are some medicaid waivers that incentify it. Some families are just on family medicaid, no cash; they may have social security income & they only need the meds. If they have real young children, esp ill children it may not be in the interest for the parent to have full-time job. However, TFA & FS clientele should have some reqs.

  10. There are numerous, obvious, gigantic factual and logical holes in this piece, which all serve to support what seems to be a pre-determined, ideological preference. For example, the author eschews any reference to actual data, instead merely expressing disdain for the economists' conclusions while ignoring their reasons. The only place where a data point is cited it is the argument against Medicaid predicated on the claim they know some moocher who "chooses not to work and to be an artist instead." First, obviously this is not in any way indicative of who is generally on Medicaid, or what Medicaid means. Second, it's obviously fabricated, to help serve the author's predetermined political view.

    When your conclusions are predetermined before you look at data and before you start writing, you aren't doing science. You aren't studying anything. You are doing public relations, not scholarly work.


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