Rational Arguments

Many of you liked my slides on quality.  I had updated them for a class I teach on Health Policy Economics.  This week’s lectures are on cost.  So enjoy these.  As usual, these are OECD data.

The first is the total cost of the health care system in US purchasing power parity:

As always, the US is that bright red line.  If you’ve been paying attention at all, it shouldn’t surprise you that the US spends more per person than any other country in the world.  What may surprise you is how much more.  It’s 2-3 times what comparable countries are paying.  Keep in mind that a significant number of people in the US get no health care at all, which lowers the average spending per person.  And for all that money, our quality is middling at best.

Now, it’s reasonable that the US should spend more in total per person.  We have more money.  But let’s look at it on a more level playing field.  How much money do we spend as a percentage of GDP compared to other countries?

That’s… not good.  Almost one sixth of our economy is spent on health care.  More, again, than any of these other countries.  Do you think that we might be in a better economic state if we had some of that money to spend on other things?  Maybe pay down the debt?  Or, if you prefer, lower taxes?

Speaking of which, one of the favorite memes of those opposing reform is to say that other countries pay much higher amounts in taxes for health care.  That’s what “we” want to avoid.  So let’s look at how much public money (taxes) we spend on health care:

See the red line?  The one at the top?  That’s the United States.  We already spend more public money – more tax dollars – per person on health care than any other country in the world.  We already fund the most expensive public health care system.  Right now.

So not only do those other countries spend less than we do per person, they spend less tax dollars per person.

Well, if our system is that expensive, it must be at least covering everyone, right?  No?  Then it must have unequivocally the best quality in the world, right?  No?

Isn’t this money then sort of wasteful?  Wouldn’t a fiscal conservative want to reign in that spending?  Find a better, cheaper way to do it?

Andrew Pollack reports:

President Obama is pushing for a last-minute change in the final health care bill that would shorten the time that expensive biotechnology drugs would be shielded from generic competition, pharmaceutical industry officials said Thursday.

Any White House intervention would be welcome news to generic pharmaceutical companies, as well as to some consumer groups, insurers and big employers, which have complained that the proposed House and Senate bills would not allow for robust competition.

If you’ve read my previous posts on pharma and research, you know I think this is a good thing.  It also has the side benefit of reducing the cost of health care significantly.

Expect pharma to release the hounds over this.

Last week I was giving a lecture on quality in health care systems, and showed some slides on the pretty crappy mortality rates in a number of disease processes in the United States.  A student who was paying attention asked if differences in prevalence could account for differences.

Well, they can.  But the differences aren’t in the direction you’d think.  Check this out, from a McKinsey Global Institute report, “Accounting for the cost of U.S. health care: A new look at why Americans spend more“:

So on the left side, you’re seeing the cost of caring for different diseases in the US in order from most expensive to least.  On the right you’re seeing when the US has a lower (orange) or higher (blue) prevalence than comparable countries.

It’s not hard to see there’s more orange than blue.  So much so that reduced prevalences in the US should result in actual cost savings compared to other countries than costing more.  We have less disease, higher costs, and often still more death from those diseases.

How much more data do you need?  The US health care system just isn’t that good.

The tax by which reform is paid seems to be shaping up as the last big battle to be fought between the House and the Senate.  The House has advocated for an income surtax on singles making more than $500,000 and couples earning more than $1,000,000.  The Senate wants an excise tax on Cadillac plans.  I’ve described the differences before, as well as my concerns over the excise tax.

I’ve been thinking about the excise tax a lot over the last week, as evidenced by my posts on it.  I’ve also been reading a lot on it.  Austin Frakt posted a great response to my questions on his site.  Paul Krugman had a thoughtful piece in his NYT blog.  John Kerry even had a pro-tax post up on HuffPo. But something didn’t sit right about it.  I think Ezra Klein figured out what I didn’t like:

A lot of the arguments over the excise tax are getting caught in a bad, and even slightly misleading, sales job from its supporters. Sen. John Kerry’s blog post defending the policy, for instance, isn’t playing it straight. Saying it won’t tax employees is a distinction without a difference: It will tax insurers, which will add the tax into the cost of their plans, and employers will either choose different plans or pass the cost on to employees. Similarly, saying it will affect only “3% of premiums in 2013″ is designed to obscure the fact that it will hit a lot more policies in 2020. But this is one of those cases when bad arguments mask a good policy, rather than the other way around.

No one defends the tax exemption for employer-sponsored health insurance in principle. They only defend it in practice. The excise tax has its opponents, but none of them say we should make food, or broadband Internet, tax free as long as it is provided by employers. You don’t even hear them demanding that the bill make non-employer-provided health care tax free. No one, in other words, is interested in expanding this arrangement to other sectors, or even to the rest of the health-care sector. But given that the tax exclusion for employer-provided health care amounts to a subsidy worth about $250 billion a year, it’s got a lot of defenders.

I think my recent problems haven’t been with the policy, it’s been with the arguments.  I agree with Ezra that the Kerry piece is overly rosy.  It tries to “spin” the excise tax in a good way.  And I don’t like positive spin any more than negative spin.  We have to be willing to address the negatives (as Austin did in response to my humble request) as well as promote the positives.

And that – if anything – needs to be said over and over and over again about this whole reform.

My biggest issue with this bill (other than its laughable “universal coverage”) is that it does not do enough to contain costs.  But I, unlike many other people you hear from, am under no illusions about how hard that will be.  It’s going to tick off EVERYONE.  Because there’s no way to trim costs, in a real way, without it being felt by a ton of people.  It’s going to result in structural changes, it’s going to result in “rationing”, and it’s going to result in people making less money.

There’s no way to significantly reduce costs without everyone, even the middle class, feeling it.  Companies will feel it, hospitals will feel it, practitioners will feel it, and yes – people will feel it.  So to pretend that you can cut costs in a major way without it falling, at least in part, on a big part of the United States popilation isn’t just a little disingenuous, it’s also doing damage to the long term, and critical, ability of our government to sell real cost-control to Americans.

A reader takes issue with something I said on the radio today:

I just heard you make a point on Pete Dominick’s show, but I hope you’ll be a bit more precise in the future, because (I think) it’s important.

What you said, citing the example of the caller who is a vegetarian and runs 50 miles per day but still has a cholesterol count of 400, that “It’s just not true” that peoples’ personal habits (eating, exercise etc.) is a cause of high healthcare costs in the US (or anywhere else presumably).  You said that the caller makes this clear, because some people, like him, will get sick even if they do all the right things.

But to say “Some people will get sick no matter what, so therefore it’s not correct to argue that a solution to healthcare costs increases is to make people behave better”, which is what I heard you imply, is not accurate either.

There are of course two issues.  One is whether individuals are somehow responsible for their own illnesses.  The answer is USUALLY not, so we ALWAYS have to err on the side of treating people for illness regardless of what someone might say caused the illness.  This is I think what you were trying to say.

But the other issue is AS A SOCIETY, can we influence healthcare costs via lifestyle changes.  The answer most likely is YES, WE CAN.

I think you would do us all a service by not conflating these two issues and categorically saying “It’s not true that peoples’ bad habits are a cause of high healthcare costs”.  While it’s certainly true that if no one ever ate at McDonalds people would still get sick, it’s also true that if everyone ate at McDonalds all the time healthcare costs would  certainly increase.

I wish I could go back and listen, but that’s not possible right now.  If I said that “people’s personal habits are not a cause of high health care costs” then I apologize.  I meant to say that”people’s personal habits are not THE cause of high health care costs”.  I also don’t think that I said that “people will get sick no matter what, so there’s no reason to make people behave better”.

Look, the first part of what I was saying can be summed up here.  It’s a common argument, and I think a flawed one, to say that the high health care costs in the United States are the fault of the American people and their lifestyle.  I also think that there is plenty of evidence that most reasons for the high cost lie elsewhere.

Moreover, I don’t think getting people to behave better is a bad idea.  I made a strong case on the show for a better public health infrastructure.  I just don’t think that getting people to behave better will necessarily reduce costs for society.  There’s an argument to be made that getting people to behave better will make them live longer and therefore cost MORE over the long term.  Not necessarily, but it’s possible.  I think we should encourage people to be healthier because it’s an outcomes good (definite) not because it will save money (debatable).

One of the most commonly heard memes when it comes to the high cost of health care is that somehow the United States population is predisposed to be more expensive.  Somehow, we are inherently more costly.  Or we do stuff to make us unhealthy.  It’s just not true.

Here are some more slides I use when I talk about quality.  Again, this is OECD data, and I will show you eight of hte 10 richest countries in the world with all data available since 1993.

Can we agree that the elderly cost more?  So a population that consists of more elderly people would inherently be more expensive.  Here is the percentage of the population age 65 or older:

Huh.  So the United States has the lowest percentage of expensive elderly people.

Conversely, kids are cheap.  They are much healthier and have fewer chronic illnesses.  The more kids you have in your population, the cheaper it should be to care for:

Hmm.  So the United States has a higher proportion of young people than any of the other countries.  It seems like – if anything – the United States is predisposed to have the lowest health care costs by age.

But wait!  We do stuff to make ourselves unhealthy- like smoke.  Right:

Wrong.  The United States has almost the lowest tobacco use of any of these countries.

It must be alcohol then:

Nope.  Turns out that people in the United States have some of the lowest rates of alcohol consumption.

Don’t despair.  We are more overweight or obese than those other countries:

But come on, our percentages are barely higher than the United Kingdom, which costs less than half as much per person as our system.

So, yes, we are heavier than those other countries.  But that alone can’t account for the extremely high cost of health care in the United States, especially given that we smoke less, drink less,  and have a higher percentage of cheap kids along with a lower percentage of expensive elderly.  There must be another reason health care costs so much in the United States.

There is.

Those of you who have heard me talk about health care reform know that I have a number of problems with the bill.  I think it’s not truly universal.  I think it doesn’t take care of the perverse economic incentives of private insurance.  I think the subsidies aren’t sufficient.

And I think it does a pretty crappy job of cost control.

That said, a number of you have written me to complain that there are some cost controls in the bill.  You’re right.  Ezra Klein does a pretty good job of summarizing them:

1) Bundled payments: A lot of the focus has been on cost controls that work through the insurance system. But costs aren’t rising because insurance is expensive. They’re rising because health care is expensive. The experiments with bundled payments are an attempt to begin addressing those drivers directly. Right now, hospitals get paid for each procedure they conduct. If you come in with symptoms of a stroke, they get one check for the diagnostic, one check for the stroke medication, one check for the surgery, etc. And if you have to come back in two weeks, they get more money for that, too.

Under bundled payments, the hospital would receive one check for everything related to your stroke over a single period of time. That means they make more money from doing less, rather than more money from doing more. It also gives them an incentive to coordinate care when you’re out of the hospital, as it’s cheaper to get a nurse to call and make sure you’re taking your medicine than it is to have you in for a follow-up procedure. For more on the bundled payments system, and Sen. Mark Warner’s efforts to strengthen it, see this post, or this article.

2) Prudent purchasing: Howard Dean gave this prominent play in his op-ed this morning, and he was right to do so. The only problem is that he said it’s not in the bill, and it is.

Prudent purchasing means that insurers can’t enter, or stay, in the exchanges unless regulators are satisfied that they’re doing a good job. That works both to ensure a good product, but also to hold costs down. If an insurer wants to hike premiums, for instance, they have to submit a justification to the exchanges and post that justification publicly on their Web site. If the exchange isn’t convinced, that insurer can be dropped from the exchange, losing all customers and profits they were making.

Do this to one or two insurers, one or two times, and the message will be pretty strong. Moreover, it will go a ways towards countering the status quo bias that current infects insurance purchasing, wherein people don’t change because, well, it’s a pain to change insurers, and so insurers aren’t forced to provide products as good as a competitive market would ordinarily demand. It also gives regulators a way to tamp down destructive marketing (an insurer can be dropped for using their marketing to try and cherrypick healthy customers — say, by advertising exclusively in Runner’s Monthly) and seed quality reforms.

3) The Medicare Commission: One reason there’s so much packed into this iteration of health-care reform is because it’s so hard to overcome the status quo outside of a massive reform effort. Common-sense delivery system reforms don’t attract sufficient interest to muscle pass interest group opposition. The Medicare Commission streamlines the reform process, forcing a panel of independent experts to suggest a package of reforms in years when spending growth is too rapid and forcing Congress to vote on the package — no amendments, and no filibuster.

The Medicare Commission enjoys a catalytic interaction with other elements of the bill, as it offers a process to take small programs and convert them into systemwide reforms. A pilot program that’s working well, for instance, might be included in the next year’s reform package, making it a policy that makes Medicare work better. This policy could be made a lot better if the Senate passes the Rockefeller-Lieberman-Whitehouse amendment.

4) The excise tax on high-value health insurance: This is, essentially, a tax on the unchecked growth in premiums. The key here is that the threshold at which premium dollars begin getting taxed at 40 percent doesn’t rise as quickly as premiums costs generally rise. Now imagine two insurers: One holds costs down quite well, and one holds costs down quite poorly. Within a couple of years, the costlier insurer’s plan is $3,000 over the threshold, while the cheaper insurer remains under it. The tax amplifies the difference between the two. The costlier insurer is suddenly $4,200 more than the cheaper insurer. In this way, plans with more successful cost-control mechanisms get an even larger market advantage. This makes the insurance market even more competitive in terms of price. For a longer explanation, read this post.

5) The individual mandate: In the last few days, an odd argument has arisen. The individual mandate, people say, must be sacrificed on the altar of cost control. The truth is quite the opposite. First, the individual mandate lowers average premium costs by bringing healthy people into the system. If the only people buying insurance are the people who expect to need to use it, the average cost will be prohibitively high. But second, the individual mandate is the political spur for future cost controls.

Here’s my two cents.  I think that (4) will work a bit, but will not hold over time.  I think that (5) works, but more for the cost of insurance than the cost of health care.

The other three have some potential for helping, but they only apply to government spending.  And, while government spending does account for a lot of care, most people get their insurance from private companies.  It’s everyone’s hope that changes to Medicare and Medicaid will trickle down to private insurance, but it’s not a sure thing.

One of the many reasons I think a single payer system would be better is that such reforms would apply to everyone, and would have more potential to have a bigger effect.

So I guess the bottom line is that there are some cost controls, and that they are likely better than nothing.  But it’s not my job to cheer “better than nothing”.  We could do a much better job.  Nearly every other comparable country does.

I love Nate Silver.  The main reason why that’s so is that he uses pretty scientific methods.  He not only will perform complex analyses – he will actually show you his methods so you could reproduce his work.

Incidentally, this is the hallmark of peer-reviewed literature and good science.  Clear methods allow you to judge the quality and soundness of the work as well as the results.  So if you disagree with his findings, you have to explain why his thought process and computations are wrong.  You can’t just have a different opinion.

Nate went and figured out how insurance will look to a family of four in 2016 under a number of plans:

What you’re looking at is the cost of insurance to a family of four making $54,000 in 2016.  The blue portion is the amount the family pays in premiums each year.  The red part is  co-pays, deductibles, etc. that a family might not pay every year; the amount shown is the maximum they would have to pay.  The diagonal portion is made up of subsidies from the government to cover the rest.

Under the Senate plan, premiums for this family would be $4000 a year.  In a bad year, they might have an additional $5000 in expenses.  That’s a maximum of $9000 a year.  I’m not saying that’s not a lot of money.

But it’s way less than without reform.  Assuming levels of inflation much less than normal, premiums for this family in 2016 would be over $13,000 a year.  In a bad year, add in about $6500 more in co-pays, deductibles, etc.  That’s now a maximum of $19,576 a year.  And – as Nate points out – the insurance they are getting is of lesse quality thanks to the fact that the regulations in the bill aren’t in effect.

Yes, some families in this situation qualify for SCHIP for their kids.  For those families, premiums would be over $8500 with another potential $5100 in cost-sharing for a potential maximum of $13,690.  And they’re getting the crappier less regulated insurance, too.

If you think he’s fudging it, go read his methods.  He’s pretty open about them.

Once again, I’m not telling you to support of oppose the bill.  But people on the right who reform would raise their costs need to look at this.  And people on the left who claim the Senate bill is now immoral and does more good than harm need to take a deep breath, too.

Think hard before you rant.

Since it didn’t get featured at HuffPo:

In case you’ve been under a rock, last week the U.S. Preventive Services Task Force released their updated recommendations on screening for breast cancer.  The USPSTF is not a political organization.  They aren’t an advocacy organization, or even a policy making organization.  They are, “[a]n independent panel of experts in primary care and prevention that systematically reviews the evidence of effectiveness and develops recommendations for clinical preventive services.”

Here’s what they said:

The USPSTF recommends against routine screening mammography in women aged 40 to 49 years. The decision to start regular, biennial screening mammography before the age of 50 years should be an individual one and take patient context into account, including the patient’s values regarding specific benefits and harms.

Right below that recommendation appears this quotation from Diana Petitti, Vice Chair, U.S. Preventive Services Task Force, in a highlighted box:

“So, what does this mean if you are a woman in your 40s? You should talk to your doctor and make an informed decision about whether a mammography is right for you based on your family history, general health, and personal values.”

Mammograms weren’t outlawed.  They weren’t taken away.  No one’s insurance stopped covering them.  This was a reasoned statement that because the evidence suggests that universal screening of women in their 40s may not be doing more benefit than harm, each woman should make an individual decision with their physician.  It was based on a transparent analysis that anyone could repeat.  Read the full report.

But – to be honest – I don’t want to have a discussion about mammograms.  It’s not my area of expertise, nor an area in which I feel especially qualified to tell you what to do.  I suppose that makes me rare.  But I am reasonably knowledgeable about decision analysis and how these studies are done.

Although many seem to hate comparative effectiveness research, or cost-effectiveness research, or whatever you want to call it, those same people often seem obsessed with the cost of reform.  Yet the cost of reform (maybe $90 billion a year) is NOTHING compared to the cost of health care itself ($2.5 trillion, or $2500 billion a year).  The first question I am always asked is, “Why does care cost so much in the United States?”  The simple answer is because everything costs too much.  Look at this graphic from a McKinsey Global Institute study of healthcare:

Yes, it’s a bit overwhelming, but here’s the critical part.  The dark blue bars are the amount that the US spends which is more than you’d expect for what we get in return.  We like to demonize the private insurance industry, and the “wasteful” spending there is more than 60% of all spending on health administration and insurance, but it’s only a tiny percentage of overall spending.  Same goes for drugs, where “wasteful” spending is less than $100 billion.

“Wasteful” spending in outpatient care, however, is over $430 billion a year.  Know what that includes?  Doctors.  Hospitals.  Nurses.  Actual things patients want, like office visits and tests (even mammograms).  There’s actually two and a half times more “wasteful” spending in actual care than in drugs and health insurance combined.  But it’s very hard, and politically unpopular, for us to attack those providing care.  So we focus on other things, facets of the system that contribute much less to the overall cost.

But if we aren’t willing to tackle wasted care, we will never truly contain costs.

How can we decide what works and what doesn’t?  How can we decide what can be cut?  That’s why we need comparative effectiveness research.  That’s why we need bodies like the USPSTF.  Independent organizations made up of people who understand the research and can inform us how some things compare to others.  They’re not perfect, but they are transparent, accountable, and public.

We so often act as if everything in medicine is an unequivocal benefit.  That’s simply not the case.  Everything has harms as well.  Ideally, the benefits outweigh the harms.  Sometimes, however, that’s not the case.  And sometimes, in the real world, cost is a harm.

There simply isn’t an unlimited amount of money in the budget.  Each dollar we spend on stuff that doesn’t work is a dollar we can’t spend on stuff that does.  Legitimate care is denied every day.  Ideally, it should be denied when it doesn’t work, or isn’t providing bang for the buck.

How are we to prioritize what to pay for?  That’s an excellent question.  I don’t necessarily have the answer.  But we need to find an answer.  Putting our heads in the sand and pretending that we will never need to make these decisions will result in economic ruin.  Saying that we need to cut costs and then declaring that any attempt to find places we can cut costs is rationing – sometimes even saying those two statements almost simultaneously – is not only hypocritical, it’s also dangerous.

And that’s why this last week has been so disappointing to me.  Research isn’t perfect, not even that done by the USPSTF.  But instead of having a debate about the merits of the findings of the USPSTF, we were flooded with politics.  On day one, we were all confronted with this:

“Tens of thousands of lives are being saved by mammography screening, and these idiots want to do away with it,” said Daniel B. Kopans, a radiology professor at Harvard Medical School. “It’s crazy — unethical, really.”

This kind of rhetoric, calling the USPSTF “crazy” and “unethical” does nothing to move the debate.  The “numbers of lives saved” are also not based on research.

Understand – most of the “waste” in health care comes from just this sort of stuff.  It’s not easy to identify, and even harder to cut.  It won’t be universally popular, and it won’t win anyone political acclaim.  But it needs to be discussed and debated. Someone is always going to be upset at cuts in spending.  They can’t come from nothing.

If we’re not willing even to entertain a discussion of cuts, though, we’re doomed.  If we declare any recommendation to reduce expenditures as “rationing” or “unethical”, then we will go bankrupt.  We need leaders willing to host a rational discussion on health care costs free from partisan rhetoric, or we might as well close up shop now.

While everyone is screaming about the public option – nominally because it will reduce the costs of health care – I’ve seen much less discussion of MedPac.  What is MedPac?

The Medicare Payment Advisory Commission (MedPAC) is an independent Congressional agency established by the Balanced Budget Act of 1997 (P.L. 105-33) to advise the U.S. Congress on issues affecting the Medicare program. The Commission’s statutory mandate is quite broad: In addition to advising the Congress on payments to private health plans participating in Medicare and providers in Medicare’s traditional fee-for-service program, MedPAC is also tasked with analyzing access to care, quality of care, and other issues affecting Medicare.

Basically, MedPac is supposed to make recommendations on Medicare.  In the past, Congress has done a good job of ignoring its recommendations.  But under reform, MedPac was supposed to get some teeth.  This is important, not just for reform.  As I’ve said before, Medicare costs WAY more than reform and regardless of whatever reform does, we need to start curbing the increases of Medicare.  Anyone who is serious about the budget, about costs, has to be concerned with the increasing costs of Medicare.  And yet:

Unfortunately, the bill currently being debated in the Senate has effectively neutered the commission’s powers (and the House didn’t even have a commission in their bill). As pointed out by David Leonhardt in the New York Times, the Senate directs that the commission leave doctors and hospitals untouched by its recommendations for the first four years of its existence (2015-2018). Then, in an even more insidious direction, the permanent commission will likely be prohibited from submitting a proposal beyond 2019. These restrictions are layered on top of the initial restrictions Congress placed on the White House’s commission proposal (benefits can’t be “restricted,” cost sharing can’t be increased, eligibility can’t be modified, and health care can’t be “rationed”).

The legislative language with the post-2019 limitation popped up some time after the bill left the Senate Finance Committee. In that bill, the 2015-1018 restriction was there, but the assumption was after the first five years of fully phased-in health care reform and its delivery system experiments, trials and pilot projects, the commission would be able to take that information and begin to enact system-wide reforms that could transform American health care from a “pay-for-quantity” wasteful, fee-for-service system, to a more cost-effective “pay-for-quality” system.

However, in the bill released for debate after the Finance and Health, Education, Labor and Pensions Committee legislation were merged, the new restriction was added. The legislative language is obtuse (page 1,009-1,010):

‘‘(ii) EXCEPTION.—The Board shall not submit a proposal…(III) for proposal year 2019 and subsequent proposal years, a year in which the Chief Actuary of the Centers for Medicare & Medicaid Services makes a determination in the determination year that the growth rate described in paragraph (8) exceeds the growth rate described in paragraph (6)(A)(i).

But, what it basically says is that no proposal can be submitted in any year after 2019 if the five-year average of national health care expenditures grows more rapidly than five-year average Medicare expenditures. This makes it unlikely the commission will get many opportunities to submit a proposal. As our Series on Health Care and Medicare points out, expenditures in Medicare tend to rise at slightly lower rates than overall health care expenditures (from 1970-2007 annual per- capita Medicare inflation averaged 9.2% while the private health care average was 10.4%).

Basically since Medicare does a better job at cost control than the private sector (contrary to what you hear), it’s unlikely that MedPac will get to do much at all.

Why does this seem good to people worried about costs?

(h/t Ezra Klein)