What's in the reconciliation bill? A conversation with Casey Mulligan.

 A podcast discussion with Casey Mulligan. What's in the reconciliation bill? How will it work? 

Link to the podcast page, with lots of other formats. 

Yesterday Casey tweeted that he had read the entire 2,400 page bill. Casey does this sort of thing, as explained in his book "Your'e hired." I have been trying to figure out what's in it for a while. The media coverage is basically absent. (See this great Marginal Revolution post and Bloomberg column (gated, sadly) by Tyler Cowen.) I tried downloading the actual bill too, but promptly fell asleep. (Casey has some good hints on how to read it.) 

But here we are, about to embark on a huge set of new federal programs, really larger than anything since the Johnson Administration, and there is essentially no description of what they are, no debate on how they will work, and especially (my hobby horse) what incentives and disincentives they provide. Many of the previous welfare-state programs were disastrous for the supposed beneficiaries. How are we going to avoid that again? At most we talk about top line numbers. I'm a debt hawk, but if we could heal the planet, end all inequity, bring full social racial and gender justice, wipe out poverty, give every American a life of dignity, prosperity, and opportunity for a mere $3.5 trillion, I'm in. Double it. The real question is whether any of this will happen. 

Well, Casey read the bill and knows what's in it! Tune in to find out.. 

PS, I hope to get the podcast going more regularly this fall,

Update: 

A summary and review from David Henderson. 

Casey writes a detailed blog post on BBB disincentives. 

Adumbrations of FDA

Scott Alexander's Adumbrations Of Aducanumab is a great review of FDA snafus -- with deeper lessons about regulation in general. Yes the outcome is dumb, but incentives are to blame. That's important to understand if we are ever to fix this mess. 

Scott has some great ideas for fixing the FDA's incentives. The one I like best is to reduce its power. FDA approval currently means that insurance companies and the government must pay for drugs. Break that link. The FDA now either decides safe&effective vs. not-yet-proven, and makes taking any not-yet-proven drug illegal. Reduce the FDA to simply providing information about what's known about drugs. Finally, give the FDA budgetary rewards for approving drugs. Bemoaning regulatory idiocy is fun but gets us nowhere. Anything persistently busted is not the result of stupidity, it is the result of bad incentives. 

FDA, CDC and Covid

The story of the FDA in covid is a good place to start. It's well known by now, but we are now in the era of forgetting, and it is to nobody's interest to keep this memory alive. 

The countries that got through COVID the best (eg South Korea and Taiwan) controlled it through test-and-trace. This allowed them to scrape by with minimal lockdown and almost no deaths. But it only worked because they started testing and tracing really quickly - almost the moment they learned that the coronavirus existed. Could the US have done equally well?

I think yes. A bunch of laboratories, universities, and health care groups came up with COVID tests before the virus was even in the US, and were 100% ready to deploy them. 

As with vaccines, which took a weekend to create, the state of medical science is such that really there is no reason to have pandemics any more. Public policy? Well, that's stuck in the 1700s.  

But when the US declared that the coronavirus was a “public health emergency”, the FDA announced that the emergency was so grave that they were banning all coronavirus testing, so that nobody could take advantage of the emergency to peddle shoddy tests. Perhaps you might feel like this is exactly the opposite of what you should do during an emergency? This is a sure sign that you will never work for the FDA.

A conversation with Tyler Cowen

Conversation with Tyler podcast interview. Perhaps predictably, the most challenging interview / podcast I've ever done. Video here  and embed below 

Update:

My comments on efficient markets and active management provoked a lot of email. 

I mentioned Jonathan Berk, and should have mentioned his coauthors Rick Green and Jules Van Binsbergen, on how active management can persist even though investors don't make any money on it. The basic idea is really clever:  A manager has 5% alpha skill on $10 milllion, i.e. he can earn $500k, but the skill does not scale. So he earns 5%, charges 1% fee, investors get 4%.  Investors see his great performance and rush in.  Now he has $50 million assets under management. He still earns $500k. He charges 1% fee, and investors get zero alpha. It’s equilibrium – if investors leave,  alpha to investors goes up again, and they return. Investors are earning the same zero alpha they get on the index so why not. And that’s about what we see. Fees persist in equilibrium, fees are equal to alpha on average, alpha post fees are about zero, flows follow performance. The seminal paper is "Mutual Fund Flows and Performance in Rational Markets" Jonathan B. Berk, Richard C. Green  Journal of Political Economy 2004  112 1269-1295 and a series following, here . It's not a perfect theory, but the glass is nearer full than empty, and it's a lovely supply and demand starting place to understand an industry that persists for decades. 

More generally, the average fund earns no alpha, almost guaranteed by free entry. The trouble is distinguishing the good ones from the bad ones, on ex-ante characteristics. The filters used by academics are pretty weak -- past returns, ratings, education of principals etc. On the other hand, now we just move it all up to the meta-game. Picking managers is no different than picking stocks. Skill on skill, alpha on alpha, fees on fees...

Goodman on single payer

With the current focus on "equity" and "disadvantage," even in the midst of a pandemic, one might yearn for the simplicity of a government run system. Surely if health care were free at the point of delivery, paid for by taxes, all the inequities of health care would disappear, no? (Sure we might all get bad health care, but we'd all get the same health care, no?) 

No. John Goodman has a nice Forbes article explaining why and giving the evidence from UK and Canada. Bottom line: Nothing is free. Everything is rationed. If it is not rationed by price, it is rationed by political access or personal connections. Markets are the great leveler, as anyone can get money but it's hard to get friends and connections. 

When Britain founded the National Health Service

It was often said "health care is a right." Aneurin Bevan, father of the NHS, declared, “the essence of a satisfactory health service is that rich and poor are treated alike, that poverty is not a disability and wealth is not advantaged."

30 years after the NHS began the Working Group on Inequalities in Health investigated and  

The Black Report found little evidence that the creation of the NHS had equalized health care access or health care outcomes at all. Here are the words of Patrick Jenkin, secretary of state for social services, in his introduction to the report: 

“It will come as a disappointment to many that over long periods since the inception of the NHS there is generally little sign of health inequalities in Britain actually diminishing, and in some cases they may be increasing. ..”

.. 30 years after Britain had nationalized its health care system and replaced private care with public care, it appears that inequalities in access to health care and health care outcomes were not any different than if the NHS had never been established at all!

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.

Frakt:

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?

Health spending

Via the always excellent Marginal Revolution, which has its own commentary,  a splendid Random Critical Analysis post "why conventional analysis on health care is wrong."

Why does the US spend so much more on health care than other countries? Well, in part because we are a lot richer. We buy a lot of luxury goods. The fit of the line is impressive.

So, not mentioned in the original, is the spread of household income on the x axis. Particularly interesting in terms of the call that we should be more like Denmark, it's notable just how much lower household income is in Denmark, and the rest of Europe. Eyballing it, $32,500 per year vs. $48,000 per year.

Is it just that the price of health care is driven up by the US astronomically inefficient and uncompetitive system? Apparently not -- we consume higher quantities of health care.

This does not mean everything is all hunky-dory in the US health care and health insurance system. It just means the other countries are just as screwed up as we are, but being that much richer we choose to buy more of the screwed up overpriced good.

Free Market Health Care

There exists a Free Market Medical Association. 

Some quotes from the website:

.... innovation in healthcare can only happen when a buyer and a seller are able to business transparently and fairly.

The free market movement in healthcare is gaining steam. ...

Matching a willing buyer with a willing seller of valuable healthcare services is the goal of everyone involved in this movement. We help identify patients willing to pay cash, doctors willing to list their prices, businesses attempting to provide affordable quality insurance, and providers/services/and patient advocates that are helping make everything work.

The Free Market works when there is freedom of choice:

Willing buyer
Willing seller
Market clearing price

The association seems to be mostly a marketing platform plus a bit of information and advocacy.

In the words of the inimitable Ron Swanson of Parks and Recreation,

“Whatever happened to “Hey, I have some apples, would you like to buy them?” “Yes, thank you!” That’s as complicated as it should be to open a business in this country.”

I feel like a SETI researcher who finally hears an episode of Gilligan's Island beaming down from Alpha Centauri. I thought I was alone (except Mike Cannon at Cato, John Goodman of the Goodman institute and a few other assorted oddballs like myself -- oh, and the ghost of Milton Friedman of course) to think that a basically free market, including the guaranteed renewable and transferable insurance that a free market would provide, is a practical goal for US health care. Even normally sensible free market economists usually say silly things like "well, the free market is fine for everything else but health is too important to be left to the free market."

There is hope. Common sense people are starting to see the common sense that health care and health insurance need not be the same thing, and that the same cash market by which we pay contractors, tax preparers, lawyers, architects, financial managers, car repairers, plastic surgeons, vets, and other providers of complex services can lie at the basis of health care.  

Boot Camp

The Hoover Institution will host another "Policy Boot Camp" August 16-22. See here for details and how to apply. It's a one-week survey of serious policy analysis.

The program includes  economists such as John Taylor, Ed Lazear, Amit Seru, Caroline Hoxby, Erik Hurst, and yours truly. Learn about international affairs from H.R. McMaster, Jim Mattis and  Condoleezza Rice. Niall Ferguson on Nationalism vs. Globalism and Bjorn Lomborg on climate should be worth it all on their own. And many more.

It's designed for "college students and recent graduates," but I think that is a bit elastic. Food and lodging free.

Update: in response to a commenter. Yes, PhD students and even those a year or two out are welcome. 

Goodman on health insurance

John Goodman and Devon Herrick have a good essay on where we are with health insurance.

The central impetus of Obamacare was not to insure more people.

...About 95% of those who vote already have insurance, Schumer noted. So Obamacare was promising to spend a great deal of money on people who don’t vote.

Instead, their message focused on protecting sick people from abuses by insurance companies. More often than not, that meant protecting people who migrated from an employer plan to the individual market with a preexisting condition.

Virtually every Republican proposal to reform Obamacare has been attacked by opponents as weakening protections for those with preexisting conditions.

And Republicans from the President on down have, so far and in public, committed that they will continue to address this problem with the sledgehammer of forcing insurance companies to charge the same premium to everyone who shows up, sick or not. From this Adam and Eve apple the rest of the mess follows. For now insurance is outrageously expensive for healthy people.  And both the government and insurance companies work hard to ration and limit how well they serve sick people.

Once upon a time in America there was good, relatively expensive, individual health insurance. It was "guaranteed renewable." If you bought it when you were healthy, and then got sick, they could neither cancel your policy or raise your premiums. People with part time jobs or self employed bought it. It wasn't perfect, but then again nothing is.

There is a market-based answer to pre-existing conditions, which I've been plugging for 25 years now: improve that guaranteed renewable structure. Most of all, then doctors and hospitals compete to serve sick people, rather than shun them. Only in medicine does a business try to get rid of its most faithful customers. (Thanks to John and Devon for the plug.)

As John and Devon put it,

Before Obamacare, the customers for individual market insurance were either self-employed or buying coverage between jobs. They were mainly seeking financial protection against potential future medical expenses.

Especially the right to stay insured if they got sick.

In the meantime what happened to Obamacare? It has largely expanded medicaid and subsidized exchange policies for low income people. And it has destroyed the market for individual health insurance. If you make more than the qualifying income, and are not affiliated with some large business that runs an employer-based group, you are screwed.

Free market health care

and transparent pricing are  possible. 

Russ Roberts has a great econtalk podcast, interviewing  Keith Smith of the Surgery Center of Oklahoma Click on that link, roll over the areas of your body that hurt, and find out exactly how much it will cost to fix them.

No insurance. Pay a preset transparent surprisingly low price. Get surgery. A great piece of news is that this is actually possible -- you won't go to jail (yet) for just running a hospital like any other business.

Russ and Keith had one particularly good interchange on why regular hospital pricing is so screwed up. I have made the point several times that our government wants to cross-subsidize indigent care, medicare and medicaid, and the insanity of hospital and insurance billing is mostly a reaction to that. I went on to speculate that the government is also restricting competition to uphold these cross subsidies. The existence of the surgery center of Oklahoma says to some extent I am wrong about hospitals, though it raises the question why the model is so scarce.

Russ: A friend of mine recently had back surgery at an academic institution, a nonprofit regular hospital, a very good one with a good reputation. The surgery... was $101,673.77. Seriously. Now, my listeners know that macroeconomists have a sense of humor. We know they do because they use decimal points. But it turns out hospital finance offices do too. ...That is not--repeat--not--what the hospital collected from the insurance company. But that list price, that weird, enormous list price of $100,000--a little over 100,000--was on the form. 

The surgery facility... got $13,000 from the insurer. You charge for that same surgery, I looked it up, a little under [$10,000]. So, they're 30% more than you for what they collect and they're 10 times what you charge on the list price. 

My first question is why did they write down that goofy number of $100,000 on the bill, even though the insurance company only pays [$13,000]? ... 

Keith Smith: Well, I'll back up in time. I was at a meeting where there was some hospital people and they were very angry with me because we put our prices online.... and this angry hospital administrator lost his cool....he asked me what percentage of my revenue at the Surgery Center of Oklahoma was uncompensated care.... that question haunted me, because that is a very bright, very articulate person. And he does not misspeak. I thought very carefully about what he actually said. What percentage of my revenue is uncompensated care?  

[JC, in case you're skimming read the literal words. Normally, uncompensated care might be a big fraction of your costs, but sort of by definition zero percent of your revenue]
...So, I did some checking and indeed hospitals are paid to the extent that they claim that they were not paid. And this is a kickback... Hospitals are paid to the extent that they claim that they were not paid. 

Russ Roberts: So, explain. 

Keith Smith: So, a $100,000 bill, the hospital collects $13,000. They claim that they lost $87,000. 

This $87,000 loss maintains the fiction of their not-for-profit status, but it also provides the basis for a kickback the federal government sends to this hospital in the form of what's called Disproportionate Share Hospital payments. 

So, when you hear uncompensated care, that is the $87,000 that your friend saw written off on the difference between hospital insurance and what insurance paid.
So, the fact is, the hospital made money on that case. But they claimed that they lost $87,000. 

And then that fictional loss provides the basis for a kickback from the federal government, called--it's uncompensated care or DSH, Disproportionate Share Hospital payments. So, as I thought about this, I began to realize that there's a lot of people in on this scam. Including the insurance companies. I mean, why would an insurance company agree to play along with this hospital? Well, the insurance company actually wants an inflated charge because then, for employers they work with, they can show that the savings that dealing with that particular insurance company generates is very, very large.... 

Now, what the insurers actually do is ask the hospital administrators, 'Can you do a brother a favor and actually charge $200,000 for that, so that our percentage savings actually looks larger?'

It goes on like this. A definite must-listen.

In related news, "the Trump Administration Releases Transparency Rule in Hospital Pricing" reported by Stephanie Armour in the Wall Street Journal. The subhead is "legal challenges are likely!"

The final rule will compel hospitals in 2021 to publicize the rates they negotiate with individual insurers for all services, including drugs, supplies, facility fees and care by doctors who work for the facility. 

The administration proposed extending the disclosure requirement to the $670 billion health-insurance industry. Insurance companies and group health plans that cover employees would have to disclose negotiated rates, as well as previously paid rates for out-of-network treatment, in file formats that are computer-searchable, officials said.
...
The requirements are more far-reaching than many industry leaders had expected and could upend commercial health-care markets, which are rife with complex systems of hidden charges and secret discounts. The price-disclosure initiative has become a cornerstone of the president’s 2020 re-election health strategy, despite threats of legal action from the industry. 

Hospitals and insurers typically treat specific prices for medical services as closely held secrets, with contracts between the insurers and hospital systems generally bound by confidentiality agreements. 

All well and good, and a testament to lots of the good  regulatory reform work going on under the radar screen in Washington. In some sense the headline chaos is quite useful. And my personal kudos to the market oriented health economists working on this effort.

But... You have to ask, just why do we need another layer of price-transparency regulations? Why are hospitals choosing such devious schemes, while grocery stores don't? Or, a better analogy, tax lawyers, contractors, car repair, pet repair, lasik surgeons, or anyone else performing complex personal services does not do this sort of thing? Are hospital administrators uniquely devious? Of course not. They are good hard-working men and women trying to do the best they can in a screwed-up regulatory and legal system.

So as long as hospitals and insurers want to play these games, as long as the strong incentives are there to play these games, so long as many arms of the government want to play these games to support medicare, medicaid and indigent care that governments don't want to pay for, I'm less than sanguine about their inability to get around a set of transparency rules. It seems about like bank risk regulation, a game of cat and mouse. It would seem more effective to reduce the government-provided incentive to screw things up in the first place. I guess that if transparency is politically hard and headed to legal challenges, reforming a system that so many people have so much vested interest in -- intellectual as well as financial -- might be even harder.

But, as long as the Surgery Center of Oklahoma is not driven out of business -- which its many competitors would surely like -- maybe there is hope. Free market, cash and carry, competitively priced health care might just upend the ossified current system.

Imagine if there were two Surgery Centers of Oklahoma, competing on price and quality...

Cost divergence

Source: Marginal Revolution

This lovely picture is from Why are the prices so D*mn High? by Eric Helland and Alex Tabarrok. (It's covered in Marginal Revolution: The Initial post,  Bloat does not explain the rising cost of education, and an upcoming summary on health care.)

Bottom line: objects got cheap, people got expensive. Technology, automation, globalization (thank you China), and quality improvement made goods cheaper. People, especially skilled people, got more expensive. All of which should make you feel good if you're a person and especially a skilled person.

The source of the relative rise in the cost of education and health care is less clear. Looking around at  a typical university,  school system, or hospital suggests massive bloat and inefficiency. Alex suggests  not:

I assumed that regulation, bloat and bureaucracy, monopoly power and the Baumol effect would each explain some of what is going on. After looking at this in depth, however, my conclusion is that it’s almost all Baumol effect. 

Jenkins on ACA

Holman Jenkins "Obamacare is popular because it failed" from a week ago is worth savoring and has an interesting new idea.

On Obamacare's failure:

ObamaCare’s user cohort now consists almost entirely of willing “buyers” who receive their coverage entirely or largely at taxpayer expense. It also consists of certain users who take advantage of the coverage for pre-existing conditions and stop paying once their condition has been treated.... 

...For a family of four not benefiting from a subsidy, notes insurance industry veteran Bob Laszewski, a policy can cost $15,000 with a $7,000 deductible. In other words, “they have to pay $22,000 before they get anything.” 

In every larger aim, the Affordable Care Act has predictably failed. It was supposed to ramrod efficiency through the health-care marketplace. Instead, it has become just another inefficient program bringing subsidized medicine to one more arbitrarily defined subset of the population.

(On "stop paying," see the excellent paper by Rebecca Diamond, Michael J. Dickstein, Timothy McQuade and Petra Persson. They document that many people sign up for ACA insurance, get a flurry of health care, and then quit. Half of new ACA enrollees in California quit by the end of the year. This number includes everyone, even those getting subsidized premiums, so it is likely that people paying full premiums quit even sooner.

The death of the healthcare market

People really do not need health insurance for regular small expenses, as they do not need car insurance to "pay for" oil changes. And any insurance system relies on an underlying cash market to find what the right prices are. Collision insurance works reasonably well because there is a supply and demand market for auto repair in which people pay their own money and there are competitive suppliers and free entry, offering services along a wide quality-price spectrum.

The underlying cash market has disappeared in health care. If you try to just pay for service, you face the ridiculous sticker prices. Everyone needs to go through some sort of middleman. We have, collectively, fallen for the fallacy that "negotiation" can lower everyone's price, rather than (try to) lower my price by raising yours. It is widely recognized that catastrophic insurance plus health savings plans are a much better structure than current pay for everything structures. But you can't do that if people showing up on their own to buy things are faced with fictitious "list prices." 

These thoughts come to mind reading an excellent explanation of the price of insulin posted by Novo Nordisk via Charles Sauer in the Washington Examiner (and thanks to a correspondent who sent the link) 

".. the drug pricing system, .. is incredibly complex and has resulted in a lot of confusion around what patients pay for medicines...."

"As the manufacturer, we do set the “list price” ... However, after we set the list price, we negotiate with the companies that actually pay for the medicines, which we call payers. This is necessary in order for our medicines to stay on their preferred drug list or formulary. The price or profit we receive after rebates, fees and other price concessions we provide to the payer is the “net price.”... "

Perhaps it's clearest right there: "the companies that actually pay for the medicines, which we call payers." What happened to people?

Notice also the graph. If you think it's been getting a lot worse in a short time, you're right.

Right out in the open, and clear as a bell:

...those price increases were our response to changes in the healthcare system, including a greater focus on cost savings, and trying to keep up with inflation. PBMs and payers have been asking for greater savings – as they should. However, as the rebates, discounts and price concessions got steeper, we were losing considerable revenue... So, we would continue to increase the list in an attempt to offset the increased rebates, discounts and price concessions to maintain a profitable and sustainable business. ...

Imagine what we could cure -- full oped

A WSJ oped with J J Plecs, formerly of Roam Analytics, which does a lot of health related data work. This is the full oped now that 30 days have passed. The previous blog post has a lot of interesting updates and commentary.


The discovery that cigarettes cause cancer greatly improved human health. But that discovery didn’t happen in a lab or spring from clinical trials. It came from careful analysis of mounds of data.

Imagine what we could learn today from big-data analysis of everyone’s health records: our conditions, treatments and outcomes. Then throw in genetic data, information on local environmental conditions, exercise and lifestyle habits and even the treasure troves accumulated by Google and Facebook .

The gains would be tremendous. We could learn which treatments and dosages work best for which people; how treatments interact; which genetic markers are associated with treatment success and failure; and which life choices keep us healthy. Integrating payment and other data could transform medical pricing and care provision. And all this information is sitting around, waiting to be used.

So why isn’t it already happening? It’s not just technology: Tech companies are overcoming the obstacles to uniting dispersed, poorly organized and incompatible databases. Rather, the full potential of health-care data analysis is blocked by regulation—and for a good reason: protecting privacy. Obviously, personal medical records can’t be open for all to see. But medical-data regulations go far beyond what’s needed to prevent concrete harm to consumers, and underestimate the data’s enormous value.

Most of us have seen how regulations kept medicine in the fax-machine era for decades, and how electronic medical records are still mired in complexity. It’s tough enough for patients to access their own data, or transfer it to a new doctor. Researchers face more burdensome restrictions.

“Open Data” initiatives in medical research, which make medical data freely available to researchers, are hobbled by Health Insurance Portability and Accountability Act (HIPAA) regulations and data-management procedures that reduce the data’s value and add long lead times. For example, regulations mandate the deletion of much data to ensure individual privacy. But if the data are de-identified to the point that patients can’t possibly be distinguished, nobody will be able to tell why a given patient experienced a better or worse result.

HIPAA “safe harbor” guidelines require removing specific dates from patient data. Only the year when symptoms emerged or treatments were tried can be shown. So which treatment was tried first? And for how long? Was the patient hospitalized before the treatment or three months later? All of a sudden, the data aren’t so helpful.

Health-care data released for public use are also closely hemmed in. For instance, Medicare prescription data are censored if a doctor wrote 10 or fewer prescriptions for a particular drug. That means whole categories of usage and prescribers are systematically missing from the publicly available data.

Regulators need to place greater weight on the social value of data for research. Data use can be limited to research purposes. Specific dangers, rather than amorphous privacy concerns, can be enumerated and addressed. The Internal Revenue Service seems to have figured out how to keep individual-level tax data private while allowing economic researchers to study it. Similar exploration is needed for health data; the opportunity cost of medical discoveries not made is too high to ignore.

Research consortia or governmental agencies can release patient-level data sets, including high resolution on symptoms, treatments, lab test-results and medical outcomes, but with names and identifying details anonymized. It should be freely available to researchers first for conditions with the most serious need for new insights, such as Alzheimer’s, ALS or pancreatic cancer. These can be the leading edge for which regulators develop data-control systems they can trust.

Laws and regulations can stipulate that patients’ medical data can’t be used for nonmedical and nonresearch purposes such as advertising. Patients can be explicitly protected against any harms related to being identified by their data. Data couldn’t be used to deny access to insurance, set the cost of insurance, or for employment decisions. Patients should opt-in by default to share their medical records for research purposes, but always be able to decline to share if they’d like.

Free societies have long benefited from a wise balance between the open exchange of ideas and information, and individuals’ rights and sensitivities. We need to get that balance right for medical data. Otherwise, societies less concerned with individual rights and privacy may seize the opportunities we’re giving up.

Mr. Plecs is a consultant for the pharmaceutical and biotechnology industries. Mr. Cochrane is a senior fellow of the Hoover Institution and an adjunct scholar of the Cato Institute.

More updates. In addition to  to  Roam, Tafi, Datavant and the  FDA sentinel initiative mentioned in the previous blog post, a colleague points out Project Data Sphere which aims to "share, integrate, and analyze our collective historical cancer research data in a single location." It also mixes a wide variety of data sources, and makes data available to academics.

Imagine what we could cure

A WSJ oped with J J Plecs, formerly of Roam Analytics, which does a lot of health related data work.

The discovery that cigarettes cause cancer greatly improved human health. But that discovery didn’t happen in a lab or spring from clinical trials. It came from careful analysis of mounds of data.

Imagine what we could learn today from big-data analysis of everyone’s health records: our conditions, treatments and outcomes. Then throw in genetic data, information on local environmental conditions, exercise and lifestyle habits and even the treasure troves accumulated by Google and Facebook...

So why isn’t it already happening?..., the full potential of health-care data analysis is blocked by regulation... medical-data regulations go far beyond what’s needed to prevent concrete harm to consumers, and underestimate the data’s enormous value.... 

I'll post whole thing in 30 days. In addition to  Roam, Tafi and Datavant are two other companies I'm aware of working on this issue.

Update: 

Bob Borek, Head of Marketing, Datavant wrote to describe their effort to keep lots of data while protecting privacy:

We connect de-identified patient data. In short, as part of the process of de-identification, we create encrypted tokens that are built from the underlying PHI. The encrypted tokens allow patient records to be joined across data sets on a de-identified basis, without ever revealing the underlying PHI. In contrast to the Safe Harbor method, which - as you correctly point out - removes much of the information that would make data analytically valuable, our approach can be certified under HIPAA's Expert Determination method, allowing our clients to both join data for analysis and respect patient privacy. We're already seeing exciting new use cases, from rare disease patient finding to designing real-world evidence trials; from payers and providers building targeted intervention programs to life sciences companies forming go-to-market strategies around intelligent physician targeting.   

Update 2 the FDA sentinel initiative implements one approach to these issues. The data stays secure, but you're allowed to make queries, i.e. basically to run regressions on the FDA server.  

Cross subsidies and monopolization, explained

I found a beautiful, clear, detailed, fact-based, and devastating explanation of how forced cross-subsidies, monopolized markets, and lack of competition conspire to strangle the American health care system.

No, this was not on some goofy libertarian website. It was in the official Voter Information Guide, for the ultra-progressive state of California, authored by "the legislative analyst." Whether the analyst is a secret libertarian struggling to get the word out, or simply that this is so much the way of doing things in California that nobody notices the scandal of it all, I do not know.

Starting on p. 62, with my emphasis

911 EMERGENCY MEDICAL TRANSPORTATION

Ambulances Provide Emergency Medical Care and Transportation. When a 911 call is made for medical help, an ambulance crew is sent to the location. ... (Ambulances also provide nonemergency rides to hospitals or doctors’ offices when a patient needs treatment or testing.)

Private Companies Operate Most Ambulances. ...  State law requires ambulances to transport all patients, even patients who have no health insurance and cannot pay. ... 

Commercial Insurance Pays More for Ambulance Trips Than Government Insurance Pays. The average cost of an ambulance trip in California is about $750. Medicare and Medi-Cal pay ambulance companies a fixed amount for each trip. Medicare pays about $450 per trip and Medi-Cal pays about $100 per trip. As a result, ambulance companies lose money transporting Medicare and Medi-Cal patients. Ambulance companies also lose money when they transport patients with no insurance. This is because these patients typically cannot pay for these trips. To make up for these losses, ambulance companies bill patients with commercial insurance more than the average cost of an ambulance trip. On average, commercial insurers pay $1,800 per trip, more than double the cost of a typical ambulance ride.

Not stated, just why do commercial insurers put up with this? The answer is, that you need government approval to run an insurance company in California, and an insurer who said "we're not paying for that" won't be allowed to do business in California.

Also not stated, just what happens to you if you don't have health insurance but actually are the type who pays your bills? Good luck.

THE EMERGENCY AMBULANCE INDUSTRY

Counties Select Main Ambulance Providers. County agencies divide the county into several zones. The ambulance company that is chosen to serve each zone has the exclusive right to respond to all emergency calls in that area.

If you want to know why there is no competition in the 911 ambulance industry, now you know. I don't know about private, non-911 ambulances. Is this all just exploiting the convenience of 911? Can you get a competitively priced ambulance ride if you know who to call?

The company generates revenue by collecting payments from patients’ insurers. In exchange, the ambulance company pays the county for the right to provide ambulance trips in that area. The county typically chooses the ambulance company through a competitive bidding process....

So cash strapped counties are in on the business of fleecing insurance companies, and through them, people and businesses who pay premiums.

Supply-side health care

The discussion over health policy rages over who will pay -- private insurance, companies, "single payer," Obamacare, VA, Medicare, Medicaid, and so on -- as if once that's decided everything is all right -- as if once we figure out who is paying the check, the provision of health care is as straightforward a service as the provision of restaurant food, tax advice, contracting services, airline travel, car repair, or any other reasonably functional market for complex services.

As anyone who has ever visited a hospital knows, this is nowhere near the case. The health care market in the US is profoundly screwed up. The ridiculous bills you get after the fact are only one sign of evident dysfunction. The dysfunction comes down to a simple core: lack of competition. Airlines would love to charge you the way hospitals do. But if they try, competitors will come in and offer clearer, simpler and better service at a lower price.

Fixing the supply of health care strikes me as the policy win-win. Instead of the standard left-right screaming match, "we're spending too much," "you heartless monster, people will die," a more competitive health care market giving us better service at lower cost, making a cash market possible, makes everyone's goals come closer.

But even health insurance and payment policy is simple compared to the dark web of restrictions that keep health care so uncompetitive. That is deliberate. Complexity serves a purpose -- it protects anti competitive behavior from reform. It's hard for observers like me to understand what's really going on, what the roots of evident pathology are, and what policy steps (or backward steps) might fix them.

Into this breach steps a very nice article in today's WSJ, "Behind Your Rising Health-Care Bills: Secret Hospital Deals That Squelch Competition"  by Anna Wilde Mathews. Excerpts:

Dominant hospital systems use an array of secret contract terms to protect their turf and block efforts to curb health-care costs. As part of these deals, hospitals can demand insurers include them in every plan and discourage use of less-expensive rivals. Other terms allow hospitals to mask prices from consumers, limit audits of claims, add extra fees and block efforts to exclude health-care providers based on quality or cost.

The effect of contracts between hospital systems and insurers can be difficult to see directly because negotiations are secret. The contract details, including pricing, typically aren’t disclosed even to insurers’ clients—the employers and consumers who ultimately bear the cost.

Among the secret restrictions are so-called anti-steering clauses that prevent insurers from steering patients to less-expensive or higher-quality health-care providers. In some cases, they block the insurer from creating plans that cut out the system, or ones that include only some of the system’s hospitals or doctors. They also hinder plans that offer incentives such as lower copays for patients to use less-expensive or higher-quality health-care providers. The restrictive contracts sometimes require that every facility and doctor in the contracting hospital system be placed in the most favorable category, with the lowest out-of-pocket charges for patients—regardless of whether they meet the qualifications.

The Tax-and-Spend Health-Care Solution

A Wall Street Journal Oped, From July 29 2018. Now that 30 days have passed, I can post the whole thing.

The Tax-and-Spend Health-Care Solution

Honest subsidies beat cross-subsidies. They’d encourage competition and innovation.

By John H. Cochrane

Why is paying for health care such a mess in America? Why is it so hard to fix? Cross-subsidies are the original sin. The government wants to subsidize health care for poor people, chronically sick people, and people who have money but choose to spend less of it on health care than officials find sufficient. These are worthy goals, easily achieved in a completely free-market system by raising taxes and then subsidizing health care or insurance, at market prices, for people the government wishes to help.

But lawmakers do not want to be seen taxing and spending, so they hide transfers in cross-subsidies. They require emergency rooms to treat everyone who comes along, and then hospitals must overcharge everybody else. Medicare and Medicaid do not pay the full amount their services cost. Hospitals then overcharge private insurance and the few remaining cash customers.

Overcharging paying customers and providing free care in an emergency room is economically equivalent to a tax on emergency-room services that funds subsidies for others. But the effective tax and expenditure of a forced cross-subsidy do not show up on the federal budget.

Over the long term, cross-subsidies are far more inefficient than forthright taxing and spending. If the hospital is going to overcharge private insurance and paying customers to cross-subsidize the poor, the uninsured, Medicare, Medicaid and, increasingly, victims of limited exchange policies, then the hospital must be protected from competition. If competitors can come in and offer services to the paying customers, the scheme unravels.

No competition means no pressure to innovate for better service and lower costs. Soon everybody pays more than they would in a competitive free market. The damage takes time, though. Cross-subsidies are a tempting way to hide tax and spend in the short run, but they are harmful over years and decades.

We have seen this pattern over and over. Until telephone deregulation in the 1970s, the government wanted to provide telephone landlines below cost. It forced a cross-subsidy from overpriced long distance and a telephone monopoly to keep entrants out and prices up. The government wanted to subsidize small-town air service. It forced airlines to cross-subsidize from overpriced big-city services and enforced an oligopoly to keep entrants from undercutting the profitable segments. But protection bred inefficiency. After deregulation, everyone’s phone bills and airfares were lower and service was better and more innovative.

Lack of competition, especially from new entrants, is the screaming problem in health-care delivery today. In no competitive business will they not tell you the cost before providing service. In a competitive business you are bombarded with ads from new companies offering a better deal.

The situation is becoming ridiculous. Emergency rooms are staffed with out-of-network anesthesiologists. Air ambulances take everyone without question, and Medicare, Medicaid and exchange policies underpay. You wake up with immense bills, which you negotiate afterward based on ability to pay. The cash market is dead. Even if you have plenty of money, you will be massively overcharged unless you have health insurance to negotiate a lower rate.

Taxing and spending is not good for the economy. But it’s better than cross-subsidization. Taxing and spending can allow an unfettered competitive free market. Cross-subsidies must stop competition and entry at the cost of efficiency and innovation. Taxing and spending, on budget and appropriated, is also visible and transparent. Voters can see what’s going on. Finally, broad-based taxes, as damaging as they are, are better than massive implied taxes on very few people.

This is why continued tinkering with the U.S. health-care system will not work. The system will be cured only by the competition that brought far better and cheaper telephone and airline services. But there is a reason for the protections that make the system so inefficient: Allowing competition would immediately undermine cross-subsidies. Unless legislators swallow hard and put the subsidies on the budget where they belong, we can never have a competitive, innovative and efficient health-care market.

But take heart—when that market arrives, it will make the subsidies much cheaper. Yes, the government should help those in need. But there is no fundamental reason that your and my health care and insurance must be so screwed up to achieve that goal.

Mr. Cochrane is a senior fellow of the Hoover Institution at Stanford University and an adjunct scholar of the Cato Institute

Post-Apocalyptic Health Care

Post-apocalyptic life in American health care is a fantastic blog post on the state of American health care and insurance. (HT Marginal Revolution)

Bottom line:

American health care organizations can no longer operate systematically, so participants are forced to act in the communal mode, as if in the pre-modern world.

The formal systems of health care are  broken under [my interpretation, to follow] the weight of regulation. By "formal systems" I mean the normal bureaucratic procedures by which large organizations run and interact: a set of rules, forms, records, and so forth. "Bureaucratic" here is not a pejorative. Bureaucracy is what allows large organizations to work.

This isn't about technology -- for centuries large organizations worked well using the technology of paper, writing, forms, and files. Electronic records just make those structures work more efficiently.

But when the rules and formal systems grow immense, vague, contradictory, and unworkable, human networks form in their place. Then things happen only by networks of personal connections, informal structures working around the dead elephant in the room to get anything accomplished. The latter, at great inefficiency, of course. Large bureaucratic organizations, allowing people to cooperate anonymously, are vital to an advanced society.

Later in the post,

It’s like one those post-apocalyptic science fiction novels whose characters hunt wild boars with spears in the ruins of a modern city. Surrounded by machines no one understands any longer, they have reverted to primitive technology.

Except it’s in reverse. Hospitals can still operate modern material technologies (like an MRI) just fine. It’s social technologies that have broken down and reverted to a medieval level.

Systematic social relationships involve formally-defined roles and responsibilities. That is, “professionalism.” But across medical organizations, there are none. Who do you call at Anthem to find out if they’ll cover an out-of-state SNF stay? No one knows.

To be specific, follow the author through a detailed personal story. The story takes a while, and it's one story, but the granularity of a story makes the case vivid.

Options on health insurance

Alex M. Azar, U.S. secretary of health and human services, published an interesting OpEd in the Washington Post, describing a clever health insurance innovation. HHS will allow "temporary" health insurance, including a guaranteed renewability provision. The HHS announcement is here and the official rule on the Federal Register here.

Americans will once again be able to buy what is known as short-term, limited-duration insurance for up to a year, assuming their state allows it. These plans are free from most Obamacare regulations, allowing them to cost between 50 and 80 percent less.

Insurers will also be able to sell renewable plans, allowing consumers to stay on their affordable coverage for up to 36 months. Consumers can also buy separate renewability protection, which will allow them to lock in low rates in their renewable plans even if they get sick.

The big news to me is guaranteed renewability. You sign up now, and you are guaranteed rates don't go up if you get sick.

The last sentence is the most intriguing. Long ago, before the ACA made all of this sort of innovation illegal, United Health started offering the option to buy health insurance. Pay money now, and any time you get sick you can still get health insurance, at the pre-stated rate. (Under the ACA that option is now called a cell phone, but the insurance is a lot more expensive and many doctors and hospitals don't take it.)

It sounds like HHS is allowing this again. But I couldn't figure out from a quick read whether the guarantee only lasts 36 months, or if they can sell that option for a longer date. It sounds like the plain guaranteed renewability is only 36 months, the length of the contract.

For newcomers to this blog, guaranteed renewability and the option to buy health insurance is the key to escaping the preexisting conditions problem in a free market for health insurance. I'm delighted to see the idea take hold, if at the edges. Great trees grow from saplings.

The trouble is, that most of the things you worry about happen in a time frame more than 36 months. I want guaranteed renewability for life! If I get cancer in 22 months, knowing I can keep health insurance for another 14 is not that helpful. (Much more here, especially "health status insurance.")

You may ask, then, why only 36 months? As I piece it together, the ACA, which is still law, has a little carve out for temporary insurance, defined as a contract that last 12 months. Anything longer must meet the list of mandates. It sounds like HHS was pretty clever within the constraints of the law, allowing them to be renewed, so 12 months can turn in to 36. I presume you can sign up with another company after 36 months? But you lose the guaranteed renewability so the new company may charge you a lot.

Unless, perhaps, they really are letting insurance companies offer the right to buy health insurance as a separate product, and that can have as long a horizon as you want? If they haven't done that, I suggest they do so! I don't think the ACA forbids the selling of options on health insurance of arbitrary duration.