Nothing to celebrate

Good news everybody — the CBO projects Obamacare Exchange subsidy costs to be lower than previously projected.

National Journal:

Obamacare’s most expensive provisions will cost about $9 billion less than expected, according to the latest estimates from the Congressional Budget Office.

Bad news everybody —

 Most of the cost savings being projected are due to fewer people enrolling and receiving subsidies in the first three years.

National Journal from 2/4

About 6 million people will probably enroll in private insurance coverage through Obamacare this year, the Congressional Budget Office said today.

CBO had initially projected that 7 million people would sign up for coverage in the first year, but it rolled back those expectations “in light of technical problems” that plagued and certain state exchanges when they launched.

Decent news everybody —

The CBO’s February enrollment projections basically assumed that the October and November clusterfuck can be written off as a one time event.  People who would enroll in the out-years in the pre-October projections would still be enrolling in the out years, and the people who got scared away from enrolling this year will enroll next year. 

But the website clusterfuck will have significant and real costs as over a million people who otherwise probably would have insuranace in 2014 won’t.

Popping prescribed pills

Earlier this week, the LA Times had a good article on a study that traced where people who overdosed on prescription drug opiods got their pills:

The study, published Monday by the Journal of the American Medical Assn., echoes a 2012 Times investigation that found drugs prescribed by doctors caused or contributed to nearly half of the prescription overdose deaths in Southern California in recent years. The Times also revealed that authorities were failing to mine a rich database of prescribing records to identify and stop reckless prescribers…

Prescription drugs — mostly narcotic painkillers, such as OxyContin and Vicodin — contribute to more than 16,000 fatal overdoses annually and are the main reason drugs have surpassed traffic accidents as a cause of death in the U.S.

If drugs are being prescribed, this implies a good proportion of the drugs are being paid for by some insurance program.  The question is what can insurance companies and state/federal insurance programs do to minimize overprescription of opiod pain mdiciation?

There are two classes of actions that can be taken.  Medicaid has a system in place to identify patients who doctor shop for extra pills.  Doctor shopping means they frequently go to different providers for the same diagnosis, or show up to the emergency room with a pain complaint that can not be otherwise specified.  Medicaid or managed care organizations managing Medicaid patients perform statistic analysis for outliers, and then have a system that locks a patient to a single primary care provider at a signle location who can prescribe to only a single pharmacy.  This type of care-lock can last for several years.  It has been shown to reduce diversion and overdoses by making several classes of drugs far less available.

Commercial programs have this as an option.  However, since they are in the member satisfaction as well as the health provision/maitenance business, restricting member options even when it is for their own long term good is not popular.  I think there is an opportunity on the provider side of changing the opiod prescribing culture which would be far more effective in limiting diversion.  Read more

Another path to reducing gun accidents

Talking Points Memo yesterday passed along another Responsible Gun Owner Fail:

An Orlando, Fla. man accidentally discharged a gun on Friday, first striking a 12-year-old girl in a moving car then himself immediately after, the Orlando Sentinel reported.

Ventura Santos Mateo, 60, was in his garage teaching a friend how to clean his gun….

Investigators said he was holding a Sig Sauer pistol above his waist when the weapon discharged …

A police report said he won’t be charged

When I learned how to shoot, I was taught the following three things:

  • Only point a weapon at something or someone that you intend to kill
  • Always assume a weapon is loaded, and the safety is off. 
  • You are always responsible for your weapon until the weapon is in the armory’s gun safe.

Can we incorporate these basic assumptions into civil law where the assumption is that any discharge (intentional or accidental) is the responsibility of the owner of the weapon and therefore the owner is liable for whatever damage a bullet fired from his weapon causes.  Liability would follow even stolen weapons if reasonable efforts to secure the weapon were not made.  Storing a rifle in an unlocked garage would be defined as negligent behavior.  Storing a rifle in a locked gun safe which was then blowtorched open to steal the contents of the gun safe would be considered reasonable precautions and wipe away liability. 

There have been attempts to regulate firearms as a consumer protection issue, but the NRA is too strong.  This proposal moves responsibility down the chain to the individual owner instead of the manufacturer. 

The rational response of creating the assumption that the weapon owner is liable absent extraordinary cirucmstances instead of the current assumption that shit happens is for responsible owners to buy insurance to cover their liability.  Speaking as an insurance company bureaucrat, I would assume insurance companies would offer good rates to individuals who own longarms instead of handguns, who have a gun safe, who have trigger locks, who have gone to safety classes and who have otherwise demonstrated that they actually are reasonably likely to be safe. 

Individuals who think “tactical” mastabatory fantasies are reality and believe that everyone should have a loaded pistol in their unlocked night stand even if they have two pre-kindergarteners in the house would probably be rated as high risk for negligent discharge.  Individuals who have more weapons than fingers would probably be rated as risky.  Individuals who have a history of accidental discharge would be rated as risky. 

I’m not a fan of using liberterianish policy making as a first best choice, but my political judgement is that this type of regulation is the only viable away forward right now.  And going back to my health policy wonkery, reducing gun woundings means lower trauma costs, and lower recovery costs to cover.

Choice architecture and Exchanges

Daughter: “Daddy, can me and pretend friend Lulu have a snack”

Me: “Sure, do you want two choices or three choices??”

Daughter: “We want three choices”

Me: “Ok, your choices are carrots and hummus, strawberries with whipped cream, or apples”

Daughter: “Strawberries with whipped cream on the yellow plate for me.  Lulu wants the purple plate…”

This is a daily interaction.  My daughter is five, and she wants to be in control with significant personal autonomy.  We want her to at least believe that to be the case, so choice architetecture is a skill that my wife and I have spent a lot of time to develop.  If we don’t give her a choice, and just hand her strawberries with whipped cream, she’ll refuse the strawberries.  If we give her fifteen choices, one of two things happen.  If she is not exhausted, she asks for a more limited choice set.  If she is exhausted, she meltdowns as the cognitive load of deciding what she wants for a snack is too much for her tired brain.

The key to our choice architecture is for mom and dad to curate the option space down to a reasonably narrow set of choices where none of the choices are bad.  Last night, I had a mild preference for her to choose carrots and hummus as I would have enjoyed carrots and hummus leftovers from Lulu’s plate, but I was functionally indifferent to the three choices she had.  She was able to make a good choice, feel like she was in control and be a BIG GIRL.

Adults tend not to go into incomprehensible crying fits when they encounter too many choices which overwhelm their cognitive processing ability.  Instead, they choose quickly and they tend to choose poorly.  Medicare Part D is an illustrative case via Incidental Economist:

How could reduction in choice possibly be a good thing? Turns out, there’s a substantial literature on just this question. According to a 2012 Kaiser Family Foundation survey, 40% of seniors responded that the degree of multiplicity of plans was confusing and made it difficult to select the best plan. In a recent paper published in Health AffairsChao Zhou and Yuting Zhang summarize similar evidence for Medicare Part D.

Jason Abaluck and Jonathan Gruber [ungated working paper version here] observed that Part D enrollees had difficulty making their initial plan choices when Part D started in 2006. They found that beneficiaries paid more attention to plan premiums than to their own total out-of-pocket health expenses. Florian Heiss and colleagues, using 2007 and 2008 Medicare Part D data to study plan choices, found that fewer than 10 percent of consumers enrolled in the least costly plans in 2007 and 2008 and that beneficiaries could save on average about $300 per year if they switched plans. [Links added.]

 Jason Abaluck and Jonathan Gruber found that the suboptimality of choices by beneficiaries was persistent over time.

I was on Healthsherpa last night.  Choice overload abounds. Read more

Free market healthcare and 2nd best economists

The conservative line of policy analysis as to why healthcare in America is so expensive is simple. People are too insulated from the actual cost of delivering goods and services so they massively overconsume.  Making people pay for 80% or 90% of their acturial value of care with a catastrophic insurance policy to take care of outliers would make people much more price sensitive and cause healthcare expenditures (in the short term at least) to crater as people decide that their broken leg can be treated better with whiskey and duct tape rather than a series of pins and screws inserted along the fracture zone.  There is the minor problem of a dramatic drop in herd immunity as people will massively underutilize vaccinations and other long term preventative care, but those moochers will die quickly as the market intended. 

Dani Rodrik in 2007 had an awesome post defining the two major tribes of economic policy analysis. 

I think the best way to understand the source of these disagreements is to recognize that there are two genres of economists. I call them “first-best economists” and “second-best economists.” Here is my guide to them.

You can tell what kind of an economist someone is by the nature of the response s/he offers when confronted with a policy issue. The gut instinct of the members of the first group is to apply a simple supply-demand framework to the question at hand. In this world, every tax has an economic deadweight loss, every restriction on individual behavior reduces the size of the economic pie, distribution and efficiency can be neatly separated, market failures are presumed non-existent unless proved otherwise (and to be addressed only by the appropriate Pigovian tax or subsidy), people are rational and forward-looking to the first order of approximation, demand curves always slope down (and supply curves up)….

Those in the second group are inclined to see all kinds of complications, which make the textbook answers inappropriate. In their world, the economy is full of market imperfections (going well beyond environmental spillovers), distribution and efficiency cannot be neatly separated, people do not always behave rationally and they over-discount the future, some otherwise undesirable policy interventions can generate positive outcomes, and general-equilibrium complications render partial-equilibrium reasoning suspect….Since they have given up on the textbook model, members of this group have an almost-infinite variety of “models” to choose from as they think of public-policy issues.

The first group’s instinct is always to apply the first-best reasoning to the case, ignoring market imperfections in related markets, while the second group almost always presumes some market imperfections in the system. I am over-simplifying a bit, but not a whole lot.

I worship at the book of Herb Simon, I genuflect in the direction of behavioral economists, and I say five “Our Agglomorations per historical coincidence” every night.

I will agree with first best economists that there are some serious market imperfections and distortions in the healthcare market, but I have amazingly strong doubts concerning the power of “liberated” consumers to spend their own dollars in controlling healthcare costs without seeing a significant spike in mortality.  Let’s go below the fold to talk about an area where free market reforms could lead to improved outcomes and lower expenditures.

Read more

And behind Door #2

Wall Street Cheat Sheet has a very good summary of all Republican ‘proposals’ to replace Obamacare with something:

The Patient Choice, Affordability, Responsibility, and Empowerment Act is strongly reliant on market competition, with notable differences from Obamacare; it would likely cover fewer uninsured Americans, increase premiums for many older adults, shrink Medicaid, decrease subsidies for middle class Americans, scale back protections for people with preexisting conditions, and allow private insurers to escape many of the consumer-friendly requirements imposed on them by Obamacare.

Oh boy, that sounds soooooo popular!!!

Status quo bias now works in our favor.

Links on healthcare

Right now I’m stuck.  I have five or six good posts either half written or at least competently outlined, and I can’t figure out how to finish any of them.  So here are some good links instead:

The impact of patient cost-sharing on low-income populations: Evidence from Massachusetts

 Overall, we find price elasticities of about −0.16 for this low-income population, which is similar to, but somewhat lower than, elasticities calculated for higher-income populations in other settings.

We also find lower price elasticities among individuals with chronic illness and with higher levels of prior spending, suggesting that copayments are less important in these subsamples. In addition, we find no evidence of offsetting increases in hospitalizations in response to the higher copayments, although there are some statistically insignificant impacts among the chronically ill population.

Plan designs matter, and at the margin, incentives matter a lot for most people.  Individuals with chronic conditions are simply being made to pay more to manage their conditions in a higher co-pay world.

Uwe Reinhardt on Medicare pricing history:

Under this payment system, Medicare was required to reimburse each individual hospital (and other inpatient facilities) retrospectively for all the money that individual facility reported having spent on treating Medicare patients. These pro rata costs included operating costs, annual depreciation of the capital investments in the facility, interest of debt incurred to finance that capacity and, for investor-owned hospitals, a guaranteed rate of return to equity capital invested in the hospital…

 For their part, organized medicine struck a deal under which each physician (and certain other professionals) was to be paid his or her “customary, prevailing and reasonable (C.P.R.)” fee for each service…

One need not have a Ph.D. in economics, of course, to appreciate that the deal was inherently inflationary.

Rob Cullen at What-if Post on paying for the Doc Fix:

The solution that really caught our eye is one you might remember from when Congress was working on passage of the Affordable Care Act. The public option is simply an insurance plan run by the government that would be sold on the Obamacare marketplaces, and unlike almost all the other options it saves money without simply passing the cost onto individuals. Instead it negotiates for low rates with doctors and hospitals, and it provides other insurers an incentive to keep their rates low in order to stay competitive.

Liberals obviously love the public option and conservatives should love it since it saves the government a bunch of money. Unfortunately, of all the options on the list, the public option is perhaps the least likely to pass… even though it might be the smartest.

If we were operating in a world where deficit concerns had a real constituency, several major medical payment changes that were progressive favorable would be immediately on the table (single payer as a long term goal would be the crown jewel).  These include a public option, using competitive bidding for most Medicare supplies, and offering a Medicare Part D drug benefit buy-in to the Veteran’s Administration formulary.  Instead, we create rentier interests to provide services after they take their cut.

The net effect of smoking on healthcare and welfare costs; a Cohort Study

Conclusions Smoking was associated with a moderate decrease in healthcare costs, and a marked decrease in pension costs due to increased mortality. However, when a monetary value for life years lost was taken into account, the beneficial net effect of non-smoking to society was about €70 000 per individual.

Prevention is a wonderful thing if the goal is to have people enjoy healthier and longer lives.  In narrow accounting senses with very limited scope of cost-benefit accounting applied, prevention can be a net loser.  Intangible value of quality added life years is what makes prevention a net social good in most cases, not immediate cost avoidance.