Monday, July 18, 2011

Thinking through comparisons on Medicare

This weekend I was listening to Kathleen Sebelius testify about Medicare. One of the things that came up in the hearing was a comparison of Medicare payments to private payments. I forgot the figure exactly, but Medicare was supposed to have compensated physicians something like 80% of the amount that private plans do. I'm no health care expert but I believe this is different from the co-pay (which I understand is also 20%) because in the discussion they were actually talking about privately insured patients cross-subsidizing Medicare patients.

I had much the same uncertainty about this discussion that I did in the post where I caution against making head-on comparisons of public and private school students. How do they make this comparison with Medicare? For one thing, you have to be comparing seniors to seniors, controlling for their conditions, etc. But that's what introduces the problem. The large majority of seniors are on Medicare in the first place. Those that use private insurance are qualitatively different sorts of patients than Medicare patients. A straight comparison of the two would seem to be biased against Medicare because the mere participation in a private plan by a senior in the United States indicates a higher willingness to pay. Another similarity between Medicare and my public school example in the link above is that without Medicare, uninsurance rates for seniors would probably be comparable to the rest of the country (if not higher). So what is the right margin of comparison? What is the right counterfactual to think about? Seniors on Medicare now compared to a self-selected group on private insurance now? I think the more reasonable comparison would be everybody now compared to everybody in the absence of Medicare. If we think of how Medicare impacts costs and physician reimbursement, that's the right comparison. If we make that comparison, these numbers are likely to look a lot different. More senior citizens would be utilizing emergency rooms and charity care and more would be uncovered.

Either way, it's not clear to me (1.) how they get the underpayment comparison with private plans without a selection bias problem, and (2.) whether that's even the right comparison to be thinking about.

A lot of the points made in the hearing about the Ryan plan made sense (and have always made sense) to me. One of the concerns about Medicare Advantage (the current "private" version of Medicare) has been that it is subsidized, so a head-on comparison with regular Medicare is hard to make. The Ryan plan doesn't do this, of course, so it avoids that problem. I would support a voucher program as an option for Medicare, at least until we know more about how it works. Again, you're going to have a different group of people selecting into such a voucher program. What I would do is give all Medicare beneficiaries the option of converting their benefit into a voucher, and then randomly assigning who actually gets the voucher from among those who choose it (i.e. - if one million Medicare beneficiaries choose the voucher route, randomly select 500,000 to actually receive it so that we can subsequently do comparisons). There are good reasons to think that vouchers would solve a lot of the problems with fee for service, which is good because nobody likes the fee for service system.


  1. The recent study out of Oregon that was vindicated as a victory for ObamaCare (it wasn't - for reasons that are sort of kind of obvious without even looking at the study) found no discernible difference in level of ER visits between no coverage and the change to coverage under medicare.

    I really think the whole ER visit thing is absolute hogwash personally; it makes up a very tiny % of actual medical care in the U.S. today and I suspect that would also be the case without medicare as well.

  2. Right Gary - that's why I didn't just mention ER visits there. It's a spectrum including, of course, simply not seeking care.

    In some cases this would be a good trend - a lot of unnecessary care is sought. But if that trend is driven by a lack of access, that's not good.

  3. (1) You'd see more use of black and grey market medical facilities.

    (2) You'd see more pressure to devolve practices than already exists from doctors to medical personnel who aren't doctors - including of course nurses, physician assistants, etc.

    (3) You would also see even greater adoption of home-based medical care through testing services - you send off for a $20.00 - $60.00 kit to check for prostate cancer every year, that sort of thing. That revolution is already underway anyway - as long as the FDA gets the heck out of the way.

    (4) And about a dozen other things I cannot possibly anticipate, including cereal I eat every day cures that my cancer via an individualized dose of medicine made by a machine in my kitchen. May be state sponsored, run, etc., healthcare worked in the era of broken bones, but it is increasingly unlikely to work in the era of individualized medicine.

  4. 1. You would have liked Kathleen Sebelius - she was talking a lot about the obstacles to home-based care. She was focusing more on fee-for-service obstacles than FDA, but it's all good to point out.

    2. You do realize, I hope, that we don't have "state run healthcare". What we have is state insurance for certain subsets of the population. The payment structure introduces poor incentives in certain ways. Different people disagree on how to fix that, which is why we've muddled along with the status quo that nobody likes for so long. But nobody is deciding how healthcare gets delivered. This is precisely why our health care industry is so much more innovative than places that DO have state run health care.

  5. Would have?

    Is she dead?

    "But nobody is deciding how healthcare gets delivered."

    Of course they are. You don't think the ADA and the AMA (to give two examples) have a lot of control over those decisions? Consider the ADA's opposition to dental therapists as exhibit A:

    You could drive down dental care costs dramatically if dental therapists were allowed to practice outside tribal areas in Alaska (in the U.S. at least - as far as I know the practice is quite common in the rest of the developed world).

    More here:

    Medical care in the U.S. is deluged with these sorts third-party decision makers determining who one can get care from, how one can get the care, where one can get it, etc.

  6. Dead? No - you "would have" liked what she had to say about it when I was listening to her on the radio this weekend.

    You don't seem to be understanding what I'm saying. I'm not saying the U.S. is regulation free - I'm saying the primary policy lever that is used is through payments rather than actually running medical care.

    Of course liberalization of practices like this would help. That's not my point. My point is the biggest way the government is influencing the market is through insurance and the payment structure. This is in contrast with, say, the UK's NHS.

  7. "I'm saying the primary policy lever that is used is through payments rather than actually running medical care."

    I understand what you are saying, and I just disagree. The difference between the U.S. and what goes on the U.K. is that we have a lot of quasi-governmental entities which make the sorts of decisions that NHS makes in Britain - so it is a difference in organizational structures. In neither case is medical care like me going to Dell and telling them make me a computer where I can control the parameters of such in fairly significant ways (lots of choice in other words) - I have the same rough experience of non-choice in either medical system.

  8. Nobody is saying that it's the same as going to Dell for a computer, Gary. But by the same token the UK and the US on the actual delivery of care are nowhere near comparable. You're simply wrong on this Gary. It's not a matter of doing the same thing but through advisory boards rather than outright ownership. The price mechanism operates substantially more in the delivery of medical care in the U.S. and we benefit from that. It's far more than just a difference in organizational structures.

  9. *Nobody* in this conversation and very few more broadly - since you have some issues with reading this word in context or talking about things informally.

  10. "The price mechanism operates substantially more in the delivery of medical care in the U.S. and we benefit from that."

    If that is the case then why does almost no one who consumers medical have any idea what they are paying for it? For most people there is a monthly amount taken out of their check before they even see it (thus they really don't count it as their earnings) and that is the end of it besides a very small co-pay (ranging from $15 for a GP to $35 for a specialist or in the case of an ER, $150 to $450 depending on what state you are in - there are price controls on ER co-pays in other words).

  11. Gary - when economists talk about the "price mechanism" they mean that goods and services are allocated by private transactions with a medium of exchange (although I suppose that's not strictly necessary). Some prices are more transparent than others, of course. Take closing on a home, for example. Exactly what is being paid with all the closing costs can be very vague and unclear. That's an institutional question. But it's still a price mechanism. It's still a market transaction rather than allocation by decree or custom or whatever else.

  12. Anyway, even if it does work substantially more in the American system (and I do not think that it does), it clearly doesn't work substantially more to make much of a difference - when you look at healthcare outcomes they're broadly similar throughout most of the developed world.

    Which should get to an allied point - healthcare just isn't that important for health for most people (your health is determined by far more important factors than healthcare*) - what it is important for is the economy. Its economic importance has been inflated substantially by lots of government interference.

    *This ought not be surprising; at one time there was a school of historical thought that argued that advances in healthcare are what increased life expectancy in IR Britain - turns out it was mostly better nutrition.

  13. 1. You should check out Robin Hanson on these points if you're not familiar with him.

    2. A lot of the money gets spent towards end of life and on some very problematic diseases. In a lot of ways it's precisely our diets that puts us at risk for some of these problems. In other words, the dollar spending on health care is quite heterogeneous, and I wouldn't be as bold as you in making claims about exactly what it can accomplish. It may accomplish facilitating a marginally longer life after a lifetime of not taking very good care of yourself. It's not clear to me that you're appropriately positioned to determine whether that's an "inflation" of importance or not.


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