Economist's View

Smart Cost Sharing

Robert Waldmann is thinking about how to give insurance companies a long-term stake in the health of their clients. This is an example of the type of policy I had in mind when I said:

...preventative care ... ought to be encouraged, and one way to help with this is ... to forge an unbreakable lifetime relationship between the insurance company and the consumer so that expected lifetime costs are important to the insurance carrier.

Here's Robert Waldmann's plan:

Smart cost sharing, by Robert Waldmann: Ezra Klein writes about smart cost sharing. He wants a committee to decide reimbursement rates.

Oddly, I had another idea about smart cost sharing. Make the doctors pay for the care and pay the doctors based on outcomes. This is based on a Cutler et al result that very small financial incentives to doctors based on their patients' blood pressure, glucose and cholesterol can cause big changes in those outcomes.

"Tough Times Prompt Patients to Skip Care"

An indication of how people respond to paying more for health care:

Tough Times Prompt Patients to Skip Care, by Benjamin Brewer, WSJ: With gas prices hovering around $4 a gallon, my patients are cutting back on medical care.

A 59-year-old woman decided not to have a mammogram this year. At her age, she should be screened for colon cancer, too, but she is holding off until she becomes eligible for Medicare at 65. ... If she develops cancer of the colon or breast she won't have saved anything. ...

Rising deductibles, stiff drug co-payments and increasing prices for just about everything are forcing some hard choices about health. Care that doesn't strike patients as critical is getting delayed. As the economy squeezes my patients, they are showing up sicker.

A patient ... came to the office with severe pneumonia two days after refusing to let an E.R. doctor admit him to the hospital. My patient was afraid of the expense and all the time he would go without pay from work.

To make matters worse, he didn't fill the antibiotic prescription he was given either. The $50 co-payment was unaffordable, he said. This is a case when an insurer would have been better off picking up the antibiotic tab to avoid a larger expense. But there's no easy way for a doctor to override a plan's co-pay or to let an insurer know its rules are about to make something very expensive happen.

When the patient came to see me, his condition had deteriorated. I persuaded him to let me admit him to the local hospital. He was in such bad shape that he was soon transferred to the ICU of a large medical center. His care will end up costing tens of thousands of dollars.

It was no surprise to me to read recently that claims severity and costs for health insurers took an unexpected jump this year. ...

As a result of lean times, accounts receivable from uninsured patients in my practice is trending up...

Patients are still having babies at the same rate. But elective procedures, preventive exams and compliance with prescriptions are all down.

Some of my patients are taking themselves off medications. Just last week I encountered patients who stopped their cholesterol medication...

I noticed an uptick in patients canceling appointments and just not showing up over the last few weeks. ...

Many of our patients travel 20 or 30 miles to see us, and I think gas prices are affecting no-show and cancellation rates, particularly with low income patients.

My total number of office visits is off 5% from last year. ... I'm pretty well caught up on my daily deluge of paperwork... When things are busy, I almost never get those things accomplished.

It occurred to me in an idle moment that I would be a lot busier if the $600 government stimulus checks had been spent on a basket of basic primary care services. That would have paid for 130 million people to have had most of their health needs met for a year. Instead, folks around here seem to be spending more on $4 gas.

I think universal insurance offers the best solution to the problem of people skipping preventative measures to save themselves money in the short-run (provided, of course that the insurance covers preventative measures that are cost effective in the long-run). If people are uninsured, or are insured but must pay for preventative measures out-of-pocket, they tend to skip these important cost-saving measures. Perhaps it's due to a type of moral hazard - people believing that society will step in and provide care for life-threatening but curable illnesses - I don't know, it could be some sort of myopia, some other market failure, or an inconsistency in preferences. And insurance companies have no incentive to provide this care if they can disqualify people when they do become sick and shift the costs to the public sector, so the problem isn't necessarily on the consumer side. But whatever the cause, the solution to the health care problem should not induce people to forgo preventative care. Instead, such care ought to be encouraged, and one way to help with this is use universal insurance to forge an unbreakable lifetime relationship between the insurance company and the consumer so that expected lifetime costs are important to the insurance carrier.

Why Tyler Cowen is "Not So Crazy about HSAs"

Tyler Cowen:

Health savings accounts, Marginal Revolution: A few readers have written me or asked in the comments why I am not so crazy about HSAs.  From the past, read here and here, and here, or here is an index of previous MR posts on the topic; in any case my take is relatively straightforward:

1. I favor tax-free savings (albeit with some fiscal qualifications), so you can make a case for HSAs on this ground, noting that we do already have other tax-free savings vehicles.

2. HSAs take one market segment -- usually a relatively wealthy and health care-satisfied segment -- and introduce one marginal improvement of incentives.  This doesn't seem to help much in terms of lowering aggregate costs.

3. HSAs introduce greater care into any single medical expenditure by creating a direct private opportunity cost for the spender.  I am less sure it will limit medical expenditures in general; that depends on how people frame withdrawals, once funds are committed to an HSA account, and to what extent they use HSAs for what would have been cash payments anyway.

4. As Paul Krugman says, "too much health insurance" is not the fundamental problem in the health care market.  (Unlike Krugman, I don't see single-payer plans as the solution; I see the incentives of producers, combined with the fear and unreasonableness of buyers, as the key problem on the cost side.)

5. Re Bryan Caplan on Singapore, HSAs might work much better in another setting, noting that the other features of Singapore also might account the difference in performance in health care systems. 

6. Given #1 and #2, it is easy for me to believe that HSAs bring net social benefit.  It is much harder for me to see HSAs as "the one health care idea we would promote if we had one shot at health care reform."  The main beneficiaries are the healthy and the wealthy, and, while I am all for helping those people, surely that is odd, no?

7. I will profess my agnosticism on many health care policy issues, but one of the better plans is Jason Furman's and/or spending more on medical R&D and some public health programs and lots of cost-lowering deregulation while in the meantime getting expenditures and costs under control.  I also recommend Arnold Kling's work.

Medicare Privatization and Health Care Costs

Alex Tabarrok wonders what you will think about this. I don't have the institutional details I need to comment, and time is short this morning, so I'll leave it to all of you to to analyze the claim made below that Medicare Advantage programs do not cost more than traditional Medicare programs. But there doesn't seem to be any evidence here that Medicare Advantage programs cut health care costs to any significant degree - the main concern in health care reform - nor is it clear how the program will solve the adverse selection problems. As Krugman, one of the targets of Alex's post, says, "a ... private system ... has never worked for the elderly, for whom adverse selection issues are especially acute." Alex argues that adverse selection is unimportant in these markets, but that runs counter to the general view of how these markets operate:

Democrats Proudly Cut Medicare Benefits, by Alex Tabarrok: Last week Congress cut benefits to Medicare recipients and liberal pundits applauded. Indeed, Paul Krugman said this was "Kennedy's Big Day" and "the first major health care victory that Democrats have won in a long time." Of course, Krugman and the others who applauded this "victory" didn't say that they were cutting Medicare benefits - even though that is exactly what they were doing - instead they framed the victory as one over privatization and waste. Here's the story.

Medicare beneficiaries can enroll in Medicare's fee for service plan or they can choose Medicare Advantage joining, for example, an HMO. In the latter case, Medicare pays the HMO a rate per enrollee and the HMO competes to obtain enrollees by offering them a package of benefits and premiums.

Now what you will be told about Medicare Advantage is that it is more expensive than traditional Medicare. Thus the CommonWealth Fund says:

Private Medicare Advantage (MA) plans were paid an average 12.4% more per enrollee in 2005 compared with what the same enrollees would have cost in the traditional Medicare fee-for-service program...

That much is true. But why are MA programs more expensive? The answer, which one gets by innuendo and implication, is that Medicare Advantage programs are wasteful and the extra money is being pocketed by corporations. ...

Thus the message is that traditional Medicare is cheaper because it eliminates the middleman, doesn't involve private corporations, and is more efficient at lowering costs. None of this is true. ...

Here is how the MA program pays a private provider (quoting the CBO).

Private plans that want to participate in the Medicare Advantage program must submit bids indicating the per capita payment for which they are willing to provide Medicare’s Part A (Hospital Insurance) and Part B (Supplementary Medical Insurance) benefits—and to take on the financial risk of doing so.

The government compares those bids with county level benchmarks that are determined in advance through statutory rules. The benchmarks are the maximum payment the government will make for enrollees in private plans; in most cases the plans’ bids (and the resulting payments) are lower than the benchmarks....

If a plan’s bid is less than the benchmark, Medicare pays the plan its bid plus 75 percent of the amount by which the benchmark exceeds the bid.

So far you might think that Krugman et al. have a point. If the benchmarks are set too high and Medicare pays the plan its bid plus 75% of the amount by which the benchmark exceeds the bid then the plans could bid their costs and get extra payments. ...[H]ere is the kicker (quoting the OMB again, italics added):

If a plan’s bid is less than the benchmark, Medicare pays the plan its bid plus 75 percent of the amount by which the benchmark exceeds the bid. Such a plan must return that 75 percent to beneficiaries as additional benefits or as a rebate of their Part B or Part D premiums.

Now the solution to our puzzle becomes clear. Why do beneficiaries choose MA plans?

...because such plans provide additional benefits beyond those available within traditional Medicare, including coverage for services not covered by FFS Medicare (for instance, dental services) and cash rebates of premiums or reduced cost-sharing.

In fact, the OMB estimates that the vast bulk of the increased payments to private providers flow to enrollees who get better benefits and lower payments. Indeed, in the case of HMOs enrollees benefit twice - first because the benchmarks are higher and second because, contra Krugman et al., the HMOs actually have lower costs than traditional Medicare! Thus the OMB writes:

In contrast, payments to HMOs averaged 10 percent above FFS costs...On average, HMOs offered extra benefits and rebates equal to 13 percent of FFS costs; those additional benefits and rebates reflected the difference between the benchmark (which averaged 10 percent above FFS costs) and the plans’ bids (which averaged 3 percent below FFS costs).

That could be written more clearly but what they are saying is that Medicare pays HMOs 10 percent more than they would pay for an enrollee in traditional Medicare but the HMOs offer the enrollee 13 percent more worth of extra benefits and rebates. In other words, the HMOs pass on to the enrollee all of Medicare's "extra payments" plus some. ...

Now, I am not saying that higher Medicare payments are a good idea. But I dislike the fact that politicians are being lauded for fighting "wasteful privatization" when what they are really doing is cutting medical benefits for the elderly.

"'Means Testing, for Medicare"

Tyler Cowen:

Means Testing, for Medicare, by Tyler Cowen, Economic View, NY Times: Right now, ... pressing problems may lie ahead — and the presidential candidates aren’t addressing them.

No matter who sits in the Oval Office next year, there won’t be many degrees of freedom in the federal budget. That’s because spending on entitlement programs is largely locked into place, and the situation will become much worse as Americans age and health care costs rise. ... The main problem is Medicare, which reimburses the elderly for many of their health care expenses. ...

There’s one important idea lurking in the shadows that neither campaign is keen to talk about: paying out government benefits more efficiently. To put it bluntly, it means paying out full benefits only to those who really need them, and cutting back on payments to everybody else. ...

Paul Krugman: Kennedy's Big Day

Advocates of universal health care should be encouraged by "the first major health care victory that Democrats have won in a long time":

Kennedy’s Big Day, by Paul Krugman, Commentary, NY Times: ...On Wednesday, Senate Democrats ... won a huge victory on Medicare. ... Ted Kennedy, who is fighting a brain tumor, made a dramatic appearance on the Senate floor, casting the decisive vote amid cheers from his colleagues. (Only one senator was absent: John McCain.) ...

It was the first major health care victory that Democrats have won in a long time. And it was enormously encouraging for advocates of universal health care. ...

Wednesday’s vote was about restoring cuts in Medicare payments to doctors. What it was really about, however, was the fight against creeping privatization. Democrats finally took a stand...

The story really begins in 2003, when the Bush administration rammed the Medicare Modernization Act through Congress... That bill established ... Medicare Advantage plans ... in which Medicare funds are funneled through private insurance companies...

Since then, enrollment in these plans has been growing rapidly. This has had a destructive effect on Medicare’s finances: the fastest-growing type of Medicare Advantage plan ... costs taxpayers 17 percent more per beneficiary than Medicare without the middleman. It also threatens to undermine Medicare’s universality, turning it into a system in which insurance companies cherry-pick healthier and more affluent older Americans, leaving the sicker and poorer behind.

What does this have to do with cuts in doctors’ fees? Well, legislation passed a decade ago makes ... cuts automatic... This year, the automatic cuts would have reduced doctors’ payments by more than 10 percent, a pay reduction so deep that many physicians would probably have stopped taking Medicare patients.

In previous years, payments to doctors were maintained through bipartisan fudging ... to waive the rules. ...

This year, the Democratic leadership decided, instead, to link the “doctor fix” to ... reining in those expensive private fee-for-service plans. Last month, the Senate took up this bill — but Democrats failed by one vote to override a Republican filibuster. And that seemed to be that...

But then Democratic leaders decided to play brinkmanship. They let the doctors’ cuts stand for the Fourth of July holiday, daring Republicans to threaten the basic medical care of millions of Americans rather than give up subsidies to insurance companies. Over the recess period, there was an intense lobbying war between insurance companies and doctors.

And when the Senate came back in session,... the bill passed with a veto-proof majority.

If the Democrats can win victories like this now, they should be able to put a definitive end to the privatization of Medicare next year, when they’re virtually certain to have a larger Congressional majority and will probably hold the White House.

More than that, however, advocates of universal health care ... have to be very encouraged by this week’s events.

Here’s how it will play out, if all goes well: early next year, President Obama will send his health care plan to Congress. The plan will face vociferous opposition from the insurance industry — but the Medicare vote suggests that this time, unlike in 1993, Democrats will hold together.

Unless Democrats win even bigger than expected, however, they won’t have the 60 Senate votes needed to override a filibuster. What the Medicare fight shows is that the Democrats could nonetheless prevail by taking their case to the public, daring their opponents to stand in the way of health care security — so that in the end they get some Republicans to switch sides, and get the legislation through.

A lot can still go wrong with this vision. But the odds of achieving universal health care, soon, look a lot higher than they did just a couple of weeks ago.

Access to Health Care

Ben Bernanke on Challenges for Health-Care Reform:

Access to health care is the first major challenge that health-care reform must address. In 2006, a total of 47 million Americans, or almost 16 percent of the population, lacked health insurance. ...[T]he evidence ... indicates that uninsured persons receive less health care than those who are insured and that their health suffers as a consequence. Per capita expenditures on health care for uninsured individuals are, on average, roughly half those for fully insured individuals. People who are uninsured are less likely to receive preventive and screening services, less likely to receive appropriate care to manage chronic illnesses, and more likely to die prematurely from cancer--largely because they tend to be diagnosed when the disease is more advanced. One recent study found that uninsured victims of automobile accidents receive 20 percent less treatment in hospitals and are 37 percent more likely to die of their injuries than those who are insured.

Update: More on health care from Dean Baker:

Insurance fraud, by Dean Baker: The health insurance system in the United States works great, as long as you stay healthy. It's only people who need medical care who have problems.

Universal Health Care: Do We Care Enough?

Is our failure to provide adequate medical care for some segments of the population due to the fact that we don't care enough about them?:

"Want Universal Health Care? The Operative Word Is 'Care'," by Michael L. Millenson, Commentary, Washington Post: ...Here's a cold truth: Despite much media hand-wringing on the subject, most of us give about as much thought to those who lack health coverage as we do to soybean subsidies. The major obstacle to change? Those of us with insurance simply don't care very much about those without it. It's only when health care costs spike sharply, the economy totters or private employers begin to cut back on benefits that the lack of universal health care comes into focus. Noticing the steadily growing ranks of the uninsured, the broad American public -- "us" -- begins to worry that we'll soon be joining the ranks of "them." ...

Two-thirds of those without health insurance are poor or near poor... And there are clear disparities in how different racial and ethnic groups are affected. Only 13 percent of non-Hispanic white Americans is uninsured, compared with 36 percent of Hispanics, 33 percent of Native Americans, 22 percent of blacks and 17 percent of Asians/Pacific Islanders.

Politicians understand what this means in practical terms. If a lack of health insurance were truly a white middle-class crisis, then conservatives and liberals would long ago have joined together, carved out a compromise and done something. Instead, we're served a constantly recycled set of excuses for legislative stalemate. ...

When the general public talks about a health care crisis, what they're generally talking about is rising costs, a constant complaint since the Hoover administration (though Richard M. Nixon was the first president to officially declare a health care "crisis"). In response to this public clamor for cost control, those who advocate for the uninsured have decided to talk not only about the 22,000 of "them" who die annually because of a lack of access to care, but also to emphasize the money that providing coverage to "them" could actually save the rest of "us."

The Commonwealth Fund recently tallied the ways in which universal health care would save hundreds of millions of dollars, most of which were related to lowering the societal costs exacted by the greater burden of illness among the uninsured. The list was an exhaustive and exhausting one that nonetheless had the whiff of desperation, as if civil rights activists had appealed for support against segregation because it was reducing the pool of qualified candidates for the Selma, Ala., police department.

There are glimmers of hope. A growing number of insured families are struggling with higher co-payments and deductibles and skimpier coverage. These uneasy "underinsured" may yet join forces with the uninsured to demand [change]...

A survey last year ... found that more than two thirds of Americans were willing to pay 1 percent more in federal income taxes to make sure that everyone had health insurance. This counts as progress, as does the bipartisan Healthy Americans Act, a significant step toward universal coverage proposed by Sens. Ron Wyden (D-Ore.) and Bob Bennett (R-Utah).

Over the years, our society has gradually provided a medical safety net for the elderly and disabled (Medicare), the poor (Medicaid) and veterans. At one time, these commitments were controversial, and there's no doubt that they're expensive. Yet Americans from all walks of life understand that the true value of these programs must be weighed on a moral scale as well as a financial one. ...

It has been nearly a century since Theodore Roosevelt, a Republican running unsuccessfully on the Bull Moose Party ticket, boldly became the first presidential candidate to promise universal health coverage. That was in 1912. Nearly a century later, we're still waiting for a leader with the courage and skill to break through our fears and successfully lead the charge up that particular hill.

Assuming that people don't care enough currently, we can hope that people suddenly begin to care more about the disadvantaged than they do about soybean subsidies and, because it's the right thing to do, agree to provide universal health care. Maybe that can happen, the author says it is happening to some degree, but even so, I don't see anything wrong with explaining why it's in society's best economic interest to adopt a universal care system and framing the argument along those lines. That seems easier than telling people they don't care enough (or making emotional appeals), though I suppose you could try that too.

However, I'm not so sure that people are indifferent to the health care needs of the disadvantaged. But even if people do care about providing adequate health care for the disadvantaged, and I want to believe they do, even if they do recognize the moral obligation in their evaluation of the benefits of providing universal coverage, that doesn't mean that they will voluntarily step forward to help. For example, there could be a standard free rider problem. It's optimal for me if everyone else except me pays the cost of providing health care for those who cannot afford it. In that case, the poor are helped just as much since my missing contribution makes no practical difference in a large pool of people, and the help costs me nothing (and I get the benefit of being less likely to contract a contagious disease, etc.). So, the mere fact that we do not have universal coverage does not necessarily mean we don't care about the poor (though it might). It could be that we do care, there is net social value in providing coverage, but we haven't yet found a way to fully articulate the net societal benefits of universal care in a way that allows us to overcome the political obstacles that stand in the way of solving the market failure problem(s).

As for the likelihood of change, it's certainly true that the motivation to do something about the problem is greater as the costs begin to fall on the politically powerful parts of the population, and that is driving some of the current movement toward health care reform. And moving forward, as the problem becomes more widespread and the benefits of reform begin to become more evident to middle class (voting) families, the chances for reform should steadily increase. But I hesitate to follow the article's lead and use the term "glimmer of hope" to describe this since it involves things like a "growing number of insured families ... struggling with higher co-payments and deductibles and skimpier coverage" and it's hard to hope for that.

Speak Softly

People thought this was a good sign:

During a fund-raiser in Denver, Obama — a former constitutional law professor at the University of Chicago Law School — was asked what he hoped to accomplish during his first 100 days in office.

“I would call my attorney general in and review every single executive order issued by George Bush and overturn those laws or executive decisions that I feel violate the constitution,” said Obama

Other goals for his first 100 days: work out a plan to withdraw troops from Iraq; make progress on alternative energy plans and launch legislation to reform the health care system.

This was also encouraging:

[D]uring a Senate vote Wednesday, Obama dragged Lieberman by the hand to a far corner of the Senate chamber and engaged in what appeared to reporters in the gallery as an intense, three-minute conversation. While it was unclear what the two were discussing, the body language suggested that Obama was trying to convince Lieberman of something and his stance appeared slightly intimidating.

Using forceful, but not angry, hand gestures, Obama literally backed up Lieberman against the wall, leaned in very close at times, and appeared to be trying to dominate the conversation, as the two talked over each other in a few instances. ...

Obama loyalists were quick to express their frustration with Lieberman's decision and warned that if he continues to take a lead role in attacking Obama it could complicate his professional relationship with the Caucus.

And I like this too. It's from earlier today:

Barack Obama’s solution to dealing with members of Congress who don’t pass his health care plan? “Whup them.”

At a town hall meeting on health care at Virginia High School, a 95-year-old voter gave the expected nominee a maple walking stick he had carved himself with the intention of giving it to Obama.

Obama thanked the man and then, admiring his new gift, said “If members of Congress don’t pass my health care plan, I’ll whup them, I’ll whup them. That’s right, don’t mess with me, I’ll have my stick.” ...

Universal Health Care and Military Retention

Worries that universal health care will hurt military recruiting:

Health’s Gain May Be Army’s Loss, by Floyd Norris, Commentary, NY Times: Call it the law of unintended consequences. When you fix one thing, it messes up other things.

If the Democrats win the election this year, and are able to enact a health care plan that extends adequate coverage to all Americans, the loser could be the Army. Getting enough people to enlist could become a major problem for the next president. ...

Government polls show that the proportion of young people who think they might enlist is roughly half what it was in the late 1980s. The military has responded with more recruiters and higher cash enlistment bonuses, and has met its goals. A significant factor for many recruits, it turns out, is the military’s generous health benefits for dependants.

Michael Massing, writing in the April 3 issue of The New York Review of Books, tells the story of one part-time college student from Brooklyn, who was holding down two jobs but still going into debt. “Meanwhile, he got married, his wife got pregnant, and he had no health care. From a brother in the military, he had learned of the Army’s many benefits, and, visiting a recruiter, he heard about Tricare, the military’s generous health plan.” He enlisted. ... All that could change if the push for some kind of national health insurance program were to be successful. ...

[I]f such a program were adopted, it seems likely that the military, and particularly the Army, would feel the immediate effect. To expand the Army, as all the candidates say they want to do, would require some other incentive for enlistment... In the near term, it is possible that a recession will improve the military’s recruiting success. ...

One partial solution to the negative effect on enlistment of a health care plan for all could be a new G.I. education benefit. Both the House and Senate have approved such a plan... President Bush is opposed to the legislation, which its sponsors say would cost $50 billion over 10 years, and it is far from clear it will be enacted. ...

Senator Jim Webb, a freshman Democrat and Vietnam veteran, is the principal Senate sponsor of the legislation. He argued — with something less than precise data — that passage of the bill would increase enlistment by 16 percent...

Senator McCain has proposed a less costly alternative that would provide better benefits to those who stay in the military longer. He may have a point. Last year about three-quarters of Army volunteers who completed their first term of enlistment, and nearly as many marines, chose not to re-enlist. ...

If we get a real health care plan for all Americans, it might require something like the Webb bill — or a very unpopular revival of the draft — just to keep fighting in Iraq and Afghanistan. The backers of health care legislation do not want to hurt the Army, but that is what could happen.

Continuing a discussion of this topic from not too long ago, the right way to do this is to state the the goals we are trying to reach, then build incentives into the polices that direct people toward those goals with as few negative consequences as possible.

One possible goal is retention. If you want people to stay longer, deferred compensation schemes are a way to accomplish that goal. We need to decide how many people we want to stay for additional terms, and then set the compensation incentives accordingly (these can be tweaked as needed, e.g. you can have incentives for reenlistment at each decision point, or you can discourage reenlistment after some number of terms if there is some reason to do so). Yes, it may require that the government pay people serving in the military more, at least those who stay longer, but that is simply what it will cost to reach the goal, that's the price to command these resources. People who applaud the ability of markets to value resources should understand that. If it costs too much to induce sufficient reenlistment, i.e. if the costs of producing higher retention rates are greater than the benefits, then it's not a very good policy anyway.

But if the goals are different, e.g. if the goal is to provide educational benefits to make up for lost opportunities in the private sector due to service in the military, the the policy will, of course, be different as well. When evaluating a proposed policy to, for example, increase educational benefits all of the consequences, including the effects on retention, should be examined. But this is part of a cost benefit calculation. If the educational benefit - the goal of the policy - exceeds the retention cost, then it's still worthwhile.

And it may not be necessary to give up on the retention goal just because you offer educational benefits, one does not have to be traded against the other. It's possible - if you are willing to pay the cost - to offer both higher education benefits and higher deferred compensation so that both goals are attained. More help for education is available for those who choose to leave when their term ends, but since deferred compensation is higher for those who reenlist, just as many stay as before. Whether it's worth it to do this is  matter of comparing the costs and benefits, but increasing education benefits does not have to lower retention rates.

If national health care is enacted and that lowers the incentive to enlist, or to reenlist, then the compensation levels will have to be adjusted to compensate, but it doesn't have to change retention rates or the ability to provide education benefits after people leave the military if we are willing to pay what's needed to induce the desired behavior.

Coming Up Short

People in other countries used to look up to Americans, but that is changing:

Economist traces height trends, by Tom Hundley, Chicago Tribune: When John Komlos wants to take the measure of a nation's economic well-being, he doesn't check its gross domestic product or consumer price index. He ignores ... unemployment figures. Instead, Komlos takes a look at how tall its people have grown.

"Height is a very good overall indicator of how well the human organism thrives in its socioeconomic environment," he explained.

Komlos, a professor in the economics department at the University of Munich, Germany, has dedicated his professional life to the study of anthropometric history—his own coinage for the academic field that studies the links between a population's height and general well-being.

What Komlos has learned is that Americans, despite their nation's prosperity, abundance of food and cutting-edge medical technology, stopped getting taller in the 1950s and have now been passed by their European cousins.

"Americans were head and shoulders above Europeans in the 18th Century, and it stayed that way for two centuries," he said. "Now it's the other way around."

This, according to Komlos, suggests that Europeans eat better, have better access to health care and enjoy a more equitable distribution of national wealth. They will almost certainly live longer than their American counterparts. ...

Genetics determines an individual's height—whether a person is shorter or taller than the national norm—but external factors determine a population's height.

While the media quickly latched onto the height rankings, Komlos and other economists were more interested in the external factors that were causing the startling disparity between American and European growth rates.

In the 2004 paper, Komlos fingered two likely suspects: the growing gap between rich and poor in the U.S., and its lack of universal health care.

Although the U.S. has been the dominant economic power since the end of World War II, its wealth has not been very evenly distributed. According to standard measures, countries such as the Netherlands and the Scandinavian nations are at the top of the list; the U.S. ranks near the bottom, tied with Ghana and Turkmenistan, according to UN figures.

When income is distributed more evenly, it follows that access to health care also is evenly and equitably distributed, Komlos said.

He noted that a high number of Americans are without health insurance (a U.S. Census Bureau report put the figure at 47 million for 2006), meaning that millions of American children do not get top-notch medical care during the critical growth years. Meanwhile, the "tall" countries of the world have been providing their citizens with cradle-to-grave health care for generations.

Komlos does not claim that his research has established a causal link between a nation's height and its health care delivery system, only that "height is a pretty good indicator of how well a society treats its children and young people."

Komlos is struck by two things when he visits the U.S.: the alarming proportion of the population that is overweight, and the shortfall in height—especially among females.

Could America's diminished stature have something to do with its expanding girth?

Very likely, Komlos said. "The tremendous amount of fast food consumed by Americans ... has to have an impact," he said. ...

The latest national height data contains some good news and some bad, Komlos said.

The good news is that there are indications that Americans may have started to grow again. The bad news is that this growth trend appears to be bypassing black females. "This is an uncomfortable finding, especially at a time when Europeans and other developed countries are not only catching up but exceeding us," Komlos said.

Here's Paul Krugman on the same topic. He says:

We seem to be left with two main possible explanations... One is that America really has turned into 'Fast Food Nation.'

A broader explanation would be that contemporary America ... doesn’t take very good care of its children. ... Whatever the full explanation..., our relative shortness, like our low life expectancy, suggests that something is amiss with our way of life. A critical European might say that America is a land of harried parents and neglected children, of expensive health care that misses those who need it most, a society that for all its wealth somehow manages to be nasty, brutish — and short.

Update: Eric at Edge of the American West has a brief follow-up on whether this is due to immigration (it's not). Free Exchange weighs in here.

Health Savings Tax Shelter Accounts

Given the economic incentives built into Health Savings Accounts - which were identified when these accounts were first proposed - there are no surprises here: Health savings accounts offer the most benefit to people who don't really need them:

GAO Study Again Confirms Health Savings Accounts benefit Primarily High-Income Individuals, by Edwin Park, CBPP: A new Government Accountability Office (GAO) report indicates that Health Savings Accounts are used disproportionately by affluent households.  Its findings also suggest that HSAs are being used extensively as tax shelters.[1]

What Are Health Savings Accounts and Why Are They Attractive as Tax Shelters? ...Health Savings Accounts (HSAs) are accounts in which individuals with a high-deductible health insurance policy can save money to pay for out-of-pocket health expenses.  In tax year 2008, someone who enrolls in a health plan with a deductible of at least $1,100 for individual coverage and $2,200 for family coverage may establish an HSA.

HSA contributions are tax deductible.  In 2008, individuals may contribute up to $2,900 for individual coverage and $5,800 for family coverage.  These tax-preferred contributions may be placed in stocks, bonds, or other investment vehicles, with the earnings accruing tax free.  Withdrawals also are tax exempt if used for out-of-pocket medical costs.

HSAs thus have a unique tax structure.  No other savings vehicle in the federal tax code offers both tax-deductible contributions and tax-free withdrawals, as HSAs do.  Moreover, because the value of a tax deduction rises with an individual’s tax bracket, HSAs provide the largest tax benefits to high-income individuals.  In addition, higher-income individuals generally can afford to contribute more money into HSAs each year than lower-income people.  And since there are no income limits on HSA participation, very affluent individuals whose incomes who are too high for them to qualify for IRA tax breaks, or who have “maxed out” their 401(k) contributions, can use HSAs to shelter additional funds.

As a result, many health and tax policy analysts have warned that HSAs are likely to be used extensively as tax shelters by high-income individuals.  The Bush Administration and other HSA proponents have repeatedly dismissed this concern and argued that HSAs will not have such effects. ...

The GAO’s new report on the use of Health Savings Accounts examines IRS data for tax year 2005, as well as employer surveys. The findings bolster those from the GAO’s earlier study.[4] The ... principal findings include:

Pain Inequality and the Social Security Retirement Age

Should we raise the Social Security retirement age?:

Pain and inequality, Crooked Timber: The results of this new study on pain assessment by Princeton’s Alan Krueger and SUNY Stony Brook’s Arthur Stone are for the most part not particularly surprising. As it turns out, ... even physical pain is unequally shared. For example, the Krueger/Stone study found that respondents with low socio-economic status experienced “significantly higher pain occurrences and severity.”...

Occupational status seems to play an important role, given that

the average pain rating for blue collar workers is 1.00 during work and 0.84 during nonwork, and for white collar workers it is 0.61 during both work and non-work episodes.

And in an interview, Krueger said, “Those with higher incomes welcome pain almost by choice, usually through exercise,” he says. “At lower incomes, pain comes as the result of work.”

It’s a pretty decent study; though the response rate was low enough (37%) to be worrying, the sample was weighted to reflect the composition of the general population. It’s also an improvement on earlier surveys...

The results aren’t exactly news; other studies have shown that pain and socioeconomic status tend to be inversely related. But Krueger said the relationship between pain and socioeconomic status was “stronger” than he expected.

What are the policy implications? Well, for one thing, the authors say:

The strong association between self-reported disability status and pain is notable given concerns by economists and some policymakers that able-bodied individuals may seek benefits from the Disability Insurance system.

So maybe, just maybe, all those people applying for disability aren’t just a bunch of perfectly able-bodied fakers and whiners after all?

Also, one expert says the results demonstrate “the need for pain preventing measures [in the workplace] such as better ergonomics.” Well maybe, but it’s hard to see how even the most high-quality ergonomic devices are going to make life much easier for people who make a living by scrubbing floors all day, or lifting heavy boxes. And sure, a health care system that provided universal access and did a better job at pain management would help things, too.

Given that pain is higher among blue collar workers than among white collar workers, and given that pain tends to increase with age, retirement has got to look to very different to blue collar workers who have done physical labor all their life, than it does to their more sedentary white collar counterparts. Conservatives and other Social Security crisis-mongerers love to scream about how if we don’t raise the retirement age the Social Security fund will go bankrupt. The more honest ones don’t claim Social Security is going to go under any time soon, but they do say that, given increased life expectancy, increasing the retirement age only makes sense.

In fact, I once heard a University of Chicago economics professor make that very argument. It was a lecture so I couldn’t interrupt, but it was exasperating to listen to. Easy for you to say, Mr. Economics Professor! You can do your job until you’re 100, or until senility sets in, at least.

But what about the people who scrub toilets for a living? Or health care workers who spend much of their work day manually lifting patients? Asking people to do highly physically demanding jobs like those until they’re 65 is already asking quite a lot. There’s a reason why the classic union steelworker contract had a “30 and out” pension provision. After 30 years on the job, a lot of those guys’ bodies had taken so much that they weren’t physically capable of doing physical labor anymore.

So please, let’s not hear anything more about raising the Social Security retirement age... (H/T: Shakesville)

What do conservatives say about people who want to raise taxes? That nothing is stopping them from sending the government more money voluntarily, or something like that? I suppose we could say the same thing here - if you think people should work longer, nothing is stopping you from doing so - except, perhaps, your health. We could make people with physically demanding jobs get a new job somewhere else, probably a much lower paying job than they are used to given the difficulty finding employment as age advances, just to be sure they have done their part for society. After all, doing physical labor day in and day out, and in some cases giving up their bodies and their health to produce stuff for the rest of us isn't enough, we need more than that before we give them a few years in peace.

[See also: The Costs and Benefits of Raising the Retirement Age, and Indexing for Longevity.]

"Genetic Discrimination: Unfair or Natural?"

Michael Kinsley on the recent vote in congress to ban genetic discrimination by employers and insurance companies:

Genetic Discrimination: Unfair or Natural?, by Michael Kinsley, Time: Last week, with little attention or fanfare, the U.S. House of Representatives voted 414 to 1 to outlaw genetic discrimination. The only dissenter was the irascible libertarian Ron Paul. The Senate passed the same bill unanimously, and President Bush is ready to sign it. The bill tells employers and insurance companies that they may not use the results of genetic tests in choosing their employees and customers. One purpose of the bill is to encourage genetic testing. But the more important reason for it is to uphold a sense of fairness. Just as the law forbids discrimination against a person because she is black or a woman, it will henceforth forbid discrimination against her because she carries a gene that makes her more likely than average to get cancer. And the logic is similar: Why should she be punished for something completely beyond her control?

That's a good instinct... But how far should we take it? ... To avoid all the controversy around the concept of "intelligence," let's consider a slightly different concept called "talent." Is it unfair that Yo-Yo Ma can play cello better than I can? Or that people hire Frank Gehry instead of me when they want a beautiful building, or that Warren Buffett is a better stock picker? Sure, it's unfair. And it's unfair in precisely the same way..: my lack of talent at playing the cello is something I was born with and beyond my control. Could I have overcome my lack of talent through discipline and hard work? Maybe, but not enough to scare Yo-Yo. ... But we can't outlaw discrimination on the basis of talent. We don't want to. Discrimination in favor of talent--rewarding a talented cellist over a lousy one--is how we get talent to express itself. ...

The very appealing notion that genetic discrimination is unfair looks especially odd in the context of insurance. The idea of insurance is to protect against the unexpected or unlikely. Forbidding insurers to take predictable risks into account ... is asking them to ... make bets they are sure to lose. ... To truly apply the appealing principle that people should not be discriminated against because of their genes would be a leveling experiment, like something out of Stalinist Russia or China's Cultural Revolution.

Of course, there is no reason we have to follow an appealing principle off a cliff. We can have a bit of genetic justice without much risk of tumbling into Stalinism. ...

Nevertheless, the near total and uncontroversial agreement among Americans that genetic discrimination is wrong says something important about us: we may be a bit confused about all this, but we are a lot more radical about equality than we think.

Suppose someone would be the best cellist ever, but they have a genetic condition that causes their hands to shake and prevents them from expressing the talent they have. I think it's fair to, as much as we can, give everyone an equal chance to bring their talents to the marketplace and be rewarded for them. In this sense, I see health as different, it is a precondition to being able to contribute to society to the fullest extent possible, it's like education in that regard, and we ought to start out on an equal footing to the extent that we can. After that, though, you are on your own.

In addition, in some cases this is a life and death issue, and that makes it different as well. An individual born with a particular condition may not be able to afford to pay to have it treated on their own, but as a society we may be wealthy enough to pay for it collectively and we shouldn't let people die, or live less than full lives, because we are unwilling to share those risks. Since we do not choose our parents, and do not choose our genes, there is no moral hazard issue here and I have no problems with sharing the risk, i.e. the costs, collectively. We won't, of course, be able to cover everything, there has to be limits, but where we can afford to equalize opportunity by equalizing health, we should do so.

Paul Krugman: Party of Denial

The party of pragmatic solutions versus the party of denial, obfuscation, and stalling:

Party of Denial, by paul Krugman, Commentary, NY Times: During Barack Obama’s Sunday appearance on Fox News, the interviewer asked him for an example of “a hot-button issue where you would be willing to buck the Democratic Party line” and say that Republicans have the better idea.

Mr. Obama’s answer was puzzling because he gave credit where it isn’t due — and thereby undermined what could be a very effective Democratic line of argument.

In particular, Mr. Obama attributed to Republicans the idea that regulation can be flexible rather than a matter of “top-down command and control,” and in particular for the idea of controlling pollution with ... tradable emission permits rather than rigid regulations.

Well, that’s not at all what actually happened... It’s true that the first President Bush established a market-based system for controlling ... acid rain. But by then the idea of markets in emission permits had long been accepted by ... leading Democrats. The Environmental Protection Agency began letting cities meet air-quality standards using emissions-trading systems during the Carter administration — which also led the way on deregulation of airlines and trucking.

Furthermore, the ... scheme actually marked a sharp change in policy from the Reagan administration, which — committed to the belief that government is always the problem... — spent eight years opposing any effort to control acid rain. ...[E]ven as the consequences of acid rain became ever more alarming... — the Reaganites insisted that there was no problem at all. They denied the evidence, questioned the science, called for more research and did nothing. Sound familiar?

And that, surely, is the line the Democrats should be pushing in this election: Republicans have become the party of denial. If a problem can’t be solved with deregulation and tax cuts, they pretend it doesn’t exist.

Climate change is the obvious contemporary parallel with acid rain. But if the Democrats really want to pin the denialist label on John McCain, health care is the place to focus.

The health care situation, in case you haven’t noticed, is going from bad to worse. ... The Democrats have been offering real plans in response; they’re not perfect, but they are serious.

The G.O.P., by contrast ... hasn’t even tried to address concerns about coverage.  ... Until a few days ago, the only answer the McCain campaign offered to those worried about lack of coverage was the vague, implausible assertion that the magic of the marketplace would make health care cheap enough for everyone to afford.

Now Mr. McCain has admitted that maybe a government program is needed.... This appears to be a response to criticism from Elizabeth Edwards, who has been pointing out that deregulated insurers would deny coverage to anyone with, say, a history of cancer — a category that includes both her and Mr. McCain himself. But the way Mrs. Edwards has rattled the McCain campaign is evidence of just how vulnerable he is on the issue.

The point is that the health care issue could be Exhibit A for a Democratic campaign based on the argument that they are the party of pragmatic solutions, while modern Republicans won’t even acknowledge problems that don’t fit into their rigid ideological framework.

But are Democrats ready to make that case?

To be clear, both Democratic candidates have been saying things they shouldn’t; Hillary Clinton shouldn’t have endorsed the bad idea of a gas tax holiday.

But I think Mr. Obama is doing much more harm to the Democratic cause by echoing Republican attack lines on such issues as insurance mandates and Social Security. And now he’s demonstrating his post-partisanship by giving Republicans credit for good ideas they never had.

Democrats and Health Care

Jacob Hacker on the Clinton and Obama health plans:

Are You Confused Yet?, by Jacob S. Hacker, Commentary, NY Times: Polls show that health care ranks near the top of voters’ concerns, especially among Democrats. ... And yet, voters must be awfully confused about where the Democrats stand on health care. ...

So what’s the main story: (1) a basic Democratic consensus about what should be done, or (2) a widening policy divide fueled by presidential ambitions? The answer is (1), but unfortunately, the reality of (2) is increasingly upstaging this welcome development. And, unfortunately, this unnecessary and self-defeating conflict could ultimately derail efforts at reform, confusing and turning off the very voters Democrats need to woo.

To see the basic consensus, we need to go back to its immediate source: John Edwards’s campaign proposal. Mr. Edwards’s plan, released in early 2008, had ... a requirement that employers either cover their workers or help pay to cover those workers through a public framework (an approach known as “play-or-pay”). The second core element ... would give workers whose employers didn’t provide secure coverage a choice of public or private insurance. The third core element was a requirement that everyone have coverage (a so-called “individual mandate”). ...

.The cornerstone of both candidates’ plans ... is the play-or-pay requirement: employers cover their workers, or their workers are automatically enrolled in a single insurance pool to which employers are required to make contributions. (Both candidates have said they would exempt small businesses from this requirement, which could pose a big hurdle to universal coverage, since most of the uninsured work for small firms.)

Done correctly ... a play-or-pay requirement makes covering people much less complicated. The more than 90 percent of non-elderly Americans (and more than 80 percent of the uninsured) who live in a family in which someone works would be enrolled automatically... Many of those missed are already covered through public programs, and aggressive outreach could reach those who still remain without coverage. Thus, Mr. Obama’s plan could well cover almost everyone even without the individual mandate.

But, of course, that hasn’t stopped the individual coverage requirement from becoming a flashpoint of disagreement. Hillary Clinton has savaged Barack Obama for leaving out an alleged 15 million Americans — an oft-repeated estimate, the precision of which belies the huge uncertainty about how an individual mandate would be enforced and how many people it would actually cover. ...

For his part, Mr. Obama has repeatedly charged that Mrs. Clinton will force some people to buy unaffordable coverage, an incendiary charge. ... But Senators Obama and Clinton’s proposals are so similar it’s hard to see how Mr. Obama can suggest that everyone will voluntarily sign up under his plan while Mrs. Clinton’s will impose unbearable costs on middle-income folks.

The truth is that the overall costs of the two plans, their essential structure, and their overarching logic are all but identical. Neither would force people to give up employment-based plans they’re happy with. Both would give people without coverage from their employer a menu of different plans, including a predictable, simple and attractive public plan modeled after Medicare. And both could cover all or virtually all Americans for a relatively modest cost. ...

But unfortunately, the fierce debate has pushed both candidates toward rigid positions and extreme pronouncements, elevating a modest disagreement into a confusing melee. .... Meanwhile, John McCain ... has gotten a free ride.

The overheated attacks serve neither Democratic candidate. Rather than impugning each other, they should be saying how they would ensure affordability and enrollment. Mrs. Clinton took an important step in this direction by committing to a limit on how much Americans will have to pay for insurance. Mr. Obama should make a similar commitment, and make clear he will automatically enroll employees and their dependents through the workforce...

Most important, Senators Clinton and Obama should be talking less about how they would cover the uninsured as an isolated group and more about how they would provide health security to all Americans, ensuring that everyone has affordable coverage that doesn’t disappear if they are laid off or change jobs. That’s, after all, what matters to most voters... Senators Obama and Clinton have a health care prescription for these folks that’s much more attractive than John McCain’s skimpy tax credits for coverage — if only they would speak about it in clear, simple and attractive terms.

While their plans may be very close overall, there may be a key difference - their willingness to make implementation of a health care plan a top priority after taking office.

Paul Krugman: Health Care Horror Stories

Politics is "supposed to be about changing the country for the better":

Health Care Horror Stories, by Paul Krugman, Commentary, NY Times: Not long ago, a young Ohio woman named Trina Bachtel, who was having health problems while pregnant, tried to get help at a local clinic.

Unfortunately, she had previously sought care at the same clinic while uninsured and had a large unpaid balance. The clinic wouldn’t see her again unless she paid $100 per visit — which she didn’t have.

Eventually, she sought care at a hospital 30 miles away. By then, however, it was too late. Both she and the baby died.

You may think that this was an extreme case, but stories like this are common in America... How can such things happen? “I mean, people have access to health care in America,” President Bush once declared. “After all, you just go to an emergency room.” Not quite.

First..., visits to the emergency room are no substitute for regular care, which can identify ... problems before they get acute. And more than 40 percent of uninsured adults have no regular source of care.

Second, uninsured Americans often postpone medical care, even when they know they need it, because of expense.

Finally, while it’s true that hospitals will treat anyone who arrives in an emergency room with an acute problem — ... hospitals bill patients for emergency-room treatment. And fear of those bills often causes uninsured Americans to hesitate before seeking medical help, even in emergencies...

The end result is that the uninsured receive a lot less care than the insured. And sometimes this lack of care kills them. According to a recent estimate..., lack of health insurance leads to 27,000 preventable deaths in America each year.

But are they really preventable? Yes. Stories like those of Trina Bachtel ... don’t happen in any other rich country — because every other advanced nation has some form of universal health insurance. We should, too.

All of which makes the media circus of a few days ago truly shameful.

Some readers may already have recognized the story of Trina Bachtel. While campaigning in Ohio, Hillary Clinton was told this story, and she took to repeating it, without naming the victim ... as an illustration of ... why we need universal coverage.

Then The Washington Post identified Ms. Bachtel, the hospital where she died claimed that the story was false — and the news media went to town... Instead of being a story about health care, it became a story about the candidate’s supposed problems with the truth.

In fact, Mrs. Clinton was accurately repeating the story... After all the fuss, The Washington Post eventually conceded that “Bachtel’s medical tragedy began with circumstances very close to the essence” of Mrs. Clinton’s account.

And even more important, Mrs. Clinton was making a valid point about the state of health care in this country.

In other words, this was a disgraceful episode. It was particularly sad to see a number of Obama supporters (though not the Obama campaign itself) join enthusiastically in the catcalls against Mrs. Clinton’s good-faith effort to put a human face on the cruelty and injustice of the American health care system.

Look, I know that many progressives have their hearts set on seeing Barack Obama get the Democratic nomination. But politics is supposed to be about more than cheering your team and jeering the other side. It’s supposed to be about changing the country for the better.

And if being a progressive means anything, it means believing that we need universal health care, so that terrible stories like those of ... Trina Bachtel and the thousands of other Americans who die each year from lack of insurance become a thing of the past.

Health Care Costs: An Aging Population is Not the Problem

A summary of Maggie Mahar's summary of a talk by Uwe Reinhardt on the source of rising health care costs. As noted here many times, an aging population is not the problem, it's a combination of technological innovation and rising labor costs:

The Mythology of Boomers Bankrupting Our Healthcare System, by Maggie Mahar, Alternet: ...[D]eveloped countries share many of the same problems. One that stands out is the fact that our populations are aging. Each country faces the same question: How will a shrinking work force possibly pay for the medicine their nations' retirees will need?

This brings me to Princeton economist Uwe Reinhardt's speech ...  on what he called "the folklore that people bring to the healthcare policy table." By nature an iconoclast, Reinhardt spent the next 20 minutes shattering some ... myths... Begin with the notion that an aging population is a major factor driving healthcare inflation. In the United States this is accepted...

Bad news is often more gripping than good news, and "if you want to be a popular speaker, you need to feed the paranoia of your audience," Reinhardt observed, pointing to the first slide of his PowerPoint presentation -- a chart illustrating just how quickly we can expect a horde of wrinkly boomers to take over the nation. ... [Note: the slides are shown in the Alternet article.]

A second slide is even more distressing, revealing that healthcare spending on patients over 75 averages about five times what we spend on 40-year-olds.

Yet the next graph that Reinhardt offers is a little puzzling. Here, we see that the United States spends close to $7,000 per person on care -- even though its population is younger than the citizens of most developed countries... Meanwhile, Japan's population has been graying for some time, yet it spends only $1,000 per person. Could eating fish really make that much difference?

Reinhardt's next graph provides the explanation. It turns out that when you look at estimates of growth in healthcare spending from 1990 to 2030, a senescent citizenry plays only a minor role in the projected jump from $585 billion (what we laid out for healthcare in 1990) to $14,026 billion (what analysts say we'll ante up in 2030...).

What will be the biggest factor pushing the tab so much higher? Innovation. "The healthcare industry will continue developing new stuff for every age group," Reinhardt explains. Will that "new stuff" -- in the form of new drugs, devices, tests and procedures -- be worth it? Some of it will be. Some won't. ... In many areas, we seem to have reached a point of diminishing returns. This also is true in the drug industry, where most new entries are "me too drugs" -- little different from products already on the market.

"In truth, the aging of the population is not a big problem," Reinhardt says. ... This doesn't mean that healthcare spending won't continue to levitate. "But what will drive costs in coming years, will come, not from the demand side of the equation, but from the supply side,"... We can be certain that, without some significant reforms, suppliers will continue to invent new products for every age group, charging us more and selling us more -- using whatever methods it takes, from direct-to-consumer advertising to promises of near immortality and perpetual youth... -- if we just swallow enough pills and replace enough body parts. ...

Moreover, healthcare is labor intensive.... We are already experiencing a shortage of registered nurses -- which has helped raise wages. ... Looking ahead, we'll probably need 50 percent more nurses than we employed in 2000. ...

So between the endless inventiveness of those who would overmedicate us to the unavoidable costs of a labor-intensive industry in an aging society, it is the supply side of medicine that is likely to push prices higher. This, says Reinhardt, is what policymakers should be thinking about.

But, he emphasizes, it doesn't have to happen. "If we begin to purge our healthcare system of Waste, Fraud and Abuse," we could save billions... And when it comes to caring for the elderly, he suggests, "If we develop healthcare information technology, we could use it to monitor seniors in their homes -- instead of in nursing homes."

This is just one example of how the United States could bring costs down on the supply side. In addition, Medicare could use its clout to negotiate for lower drug and device prices -- just as other nations do. We could become more discriminating about what we buy from the healthcare industry's suppliers...

Finally, Sweden offers proof that an aging population doesn't have to spell financial disaster. ... [the post goes on to discuss Sweden's health care system...]

Paul Krugman: Voodoo Health Economics

John McCain's health care plan illustrates his claim that "economics is something that I've really never understood":

Voodoo Health Economics, by Paul Krugman, Commentary, NY Times: Elizabeth Edwards has cancer. John McCain has had cancer in the past. Last weekend, Mrs. Edwards bluntly pointed out that neither of them would be able to get insurance under Mr. McCain’s health care plan.

It’s about time someone said that and, more generally, made the case that Mr. McCain’s approach to health care is based on voodoo economics — not the supply-side voodoo that claims that cutting taxes increases revenues (though Mr. McCain says that, too), but the equally foolish claim, refuted by all available evidence, that the magic of the marketplace can produce cheap health care for everyone. ...

The McCain campaign’s response was condescending and dismissive — a statement that Mrs. Edwards doesn’t understand the comprehensive nature of the senator’s approach, which would harness “the power of competition...,” reducing costs so that even people with pre-existing conditions could afford care.

This is nonsense... For one thing, ... the idea that it could cut costs enough to make insurance affordable for Americans with a history of cancer or other major diseases is sheer fantasy.

Beyond that, there’s no reason to believe in these alleged cost reductions. Insurance companies do try to hold down “medical losses” — the industry’s term for ... actually ... paying a client’s medical bills. But they don’t do this by promoting cost-effective medical care.

Instead, they hold down costs by only covering healthy people, screening out those who need coverage the most — which was exactly the point Mrs. Edwards was making. They also deny as many claims as possible, forcing doctors and hospitals to spend large sums fighting to get paid.

And the international evidence ... is overwhelming: the United States has the most privatized system, with the most market competition — and it also has by far the highest health care costs in the world.

Yet the McCain health plan — actually a set of bullet points on the campaign’s Web site — is entirely based on blind faith that competition ... will solve all problems.

I’d like to single out one of these bullet points...

As I’ve mentioned in past columns, the Veterans Health Administration is one of the few clear American success stories in the struggle to contain health care costs. ...

Sure enough, Mr. McCain wants to privatize and, in effect, dismantle the V.A. Naturally, this destructive agenda comes wrapped in the flag: “America’s veterans have fought for our freedom,” says the McCain Web site. “We should give them freedom to choose ... their V.A. ... provider...” That’s a recipe for having healthy veterans drop out of the system, undermining its integrated nature and draining away resources.

Mr. McCain, then, is offering a completely wrongheaded approach to health care. But the way the campaign for the Democratic nomination has unfolded raises questions about how effective his eventual opponent will be in making that point.

The Clinton plan closely resembles the plan for universal coverage that John Edwards laid out... By contrast, Mr. Obama offers a watered-down plan that falls short of universality, and it would have higher costs per person covered.

Worse yet, Mr. Obama attacked his Democratic rivals’ health plans using conservative talking points about choice and the evil of having the government tell you what to do. That’s going to make it hard — if he is the nominee — to refute Mr. McCain when he makes similar arguments on behalf of such things as privatizing veterans’ care.

Still, health care ought to be a major issue in this campaign. I wonder if we’ll have time to discuss it after we deal with more important subjects, like bowling and basketball.

Death with Dignity

I voted in favor of this both times it was on the ballot:

A decade of data Death With Dignity Act working as intended, Editorial, Register Guard: It was an unremarkable anniversary in all but one respect: After 10 years, the simple fact that Oregon’s unique Death With Dignity Act has survived is, in itself, quite remarkable.

The nation’s only law allowing terminally ill patients who meet strict guidelines to receive a prescription for a lethal dose of medication has been under attack since the early days of the Bush administration.

Jacob Hacker: "Socialized Medicine"

Jacob Hacker says its time to adopt a national health plan:

Let's Try a Dose. We're Bound to Feel Better., by Jacob S. Hacker, Commentary, Washington Post: "Socialized medicine" is the bogeyman that just won't die. The epithet has been hurled at every national health plan since the New Deal -- even Medicare, which critics warned would strip Americans of their freedom.

And now it's back. Republicans from President Bush on down have invoked the specter of socialism in denouncing Democrats' attempts to expand publicly funded health insurance... Never mind that nobody is proposing to turn doctors into public employees and hospitals into government institutions -- the literal meaning of socialized medicine. ...

But the critics have it backward.

The "Impending Demographic Crisis"?

John Shoven argues we should raise the Social Security retirement age to solve the "impending demographic crisis":

The Truth About Aging Boomers' Effect on Our Economy, by John B. Shoven, Foreign Policy and Alternet: There is a looming catastrophe stalking the developed world. It promises to devastate the global economy, overwhelm hospitals... What is the calamity... It's the aging of the world's baby boomers, the coming tidal wave of senior citizens who will live longer, consume more, and produce less, seriously challenging societies' ability to care for their graying ranks.

At least that's how the dire warnings generally sound. Alarming forecasts bombard us about an impending demographic crisis in the United States, Europe, Japan, and even China that will reshape the way we live and work. ... The fiscal burden of supporting this rapidly expanding segment of the global population not only threatens to bankrupt national healthcare systems..., but also revolutionize electoral politics, with political clashes no longer governed by right versus left, but young versus old.

If it sounds distressing, it shouldn't. The gloomy projections are deeply flawed. The reason lies in the misleading way in which we measure age. Typically, a person's age has been determined by the number of years since his or her birth. ... Thanks to the medical revolutions of the past century, however, life expectancies have been radically prolonged. Since 1960, the average Chinese person's life span has increased by 36 years. Over roughly 40 years, South Koreans have seen their lifetimes extended by an average of 24 years, Mexicans by 17 years, and the French by nearly a decade. Given these drastic changes, our conception of what qualifies as "old" has itself become old-fashioned.

Measuring age by years since birth is just as foolish as using the dollar as a timeless unit of value. ... Just as with the dollar, it is time to introduce inflation-adjusted ages as a superior method for measuring age. The best replacement gauge is mortality risk, or the chance a person has of dying within the next year. The higher the mortality risk, the "older" a person is. It's a measurement that reflects a much more accurate picture of a person's health, likely productivity, and remaining life expectancy.

When the U.S. Social Security system was designed seven decades ago, the 65-year mark was deemed the moment when Americans moved "beyond the productive period" and into dependency. That age was chosen based on mortality risk: a 65-year-old man in 1940 could expect to live an additional 11 years, a 65-year-old woman another 15 years. But medical advances have shifted mortality risks enormously. ...

The implications are significant: The magnitude of the elderly wave that demographic forecasters have predicted is, in reality, far smaller. Forecasts today tell us that the fraction of the population over the age of 65 will grow enormously. But consider what would happen if we replaced the 65-year marker with a mortality risk measurement that governs who is considered "elderly." In 2000, 12.4 percent of the U.S. population was over the age of 65... By 2050, only ... about 15 percent of the population ... will have a mortality risk greater than 1.5 percent. That's hardly a demographic tidal wave. The global outcomes are similarly striking: A mortality-based measurement lowers the projected elderly population in 2050 in Japan, Spain, and Italy by an average of 30 percent.

Just consider the consequences of altering the age when entitlement benefits kick in or retirement becomes mandatory to these new inflation-adjusted measurements. It doesn't mean shortening retirements, just stabilizing them. In 20th-century America, the average length of retirement grew from two years to more than 19 years. As life expectancies continue to rise, retirements will continue to get longer -- and the pension bill far larger. If benefits and retirements are governed by mortality risk instead of age, the costs will be far more manageable. ...

Three comments. First, there is no guarantee that the ability to work and lead a productive life expands at the same rate as life expectancy (e.g., if most of the extension in life expectancy in the future comes from expensive interventions toward the end of life rather than improvements in health during, say, the late 60s, that make working easier then there would be no reason to extend the retirement age). It would be better to define retirement in terms of the minimum of these two concepts, the time at which the typical person can no longer be expected to work full-time on a typical job that may have physical demands, and the life expectancy adjusted retirement age discussed above. But that is not the main objection. A second issue is that Social Security is not the entitlement problem we should worry about, that title belongs to Medicare where costs are expected to increase rapidly in the future. And the problem with Medicare costs brings up the third issue, demographic change is not the driving force behind rising healthcare costs (e.g., see this article from the CBO, "The rate at which health care costs grow relative to national income—rather than the aging of the population—will be the most important determinant of future federal spending."). Most projections see large increases in health care costs in the future, but the main problem is not from the growth of the elderly population. Even if the population remained stationary, costs would still be expected to escalate rapidly.

"A Mandate Isn't Mandatory"

With all the discussion of whether individual mandates should be part of health care reform, are we are losing sight of the much bigger differences between the health care reform policies of Democrats and Republicans?:

A mandate isn't mandatory, by Jacob S. Hacker, Commentary, LA Times: ...As a health policy expert, ... I advised both Clinton and Obama on healthcare... In the context of a broad overhaul, I think an individual mandate is valuable, and I'm disappointed by some of Obama's attacks on the idea.

Still, I do not believe that the individual mandate is essential to healthcare reform, as its supporters suggest. ... By emphasizing the individual mandate, Clinton ... may be hurting the cause she cares so deeply about.

The cornerstone of both Clinton's and Obama's plans is the same: Employers must provide coverage to their workers or enroll them in a new, publicly overseen insurance pool. People in this pool could choose either a public plan modeled after Medicare or from regulated private plans. Both candidates have promised help for middle- and lower-income Americans, and both have said they will cut costs through administrative streamlining, prevention and quality improvement.

So why has attention focused on the individual mandate? Partly because candidates and their allies search for differences. But also because of the media and political interest in the experience of Massachusetts, which implemented an individual mandate. In Massachusetts, however, the mandate was the core of the legislation. Employers are not required to provide good coverage, and those that don't offer insurance only have to pay a token fine. The problem was how to get people signed up outside of employment. Hence the emphasis on an individual requirement.

The Obama and Clinton plans, by contrast, get most of their mileage out of requiring that employers provide good coverage or help pay for publicly sponsored insurance. As a result, they can sign up most people -- the 95% or so of nonelderly Americans who have some tie to the workforce -- automatically at their place of work.

If enrollment is automatic for virtually all Americans, the big question is whether premiums can be kept low enough that people will want to keep the coverage (or, in the case of Clinton's plan, won't be forced to pay too much). This in turn depends on the generosity of federal subsidies. ... Clinton's plan ... proposes almost the same amount of new federal spending as Obama does [, around $50 billion].

Can affordable coverage really be provided with new federal spending of about $50 billion? Yes, if the candidates stick to their pledge of allowing public insurance to compete with private insurance to hold down costs. ...

Thus, the mandate melee obscures what are likely to be the most important features of Obama's and Clinton's plans: how they would enroll people, how they would ensure premiums stay low and how they would keep costs down. Instead, Clinton and Obama are arguing about one of the least salable aspects of reform: forcing people to buy coverage individually. And they're fighting over technical differences instead of taking on the starkly divergent GOP vision on healthcare.

So let's have a vigorous primary fight. But let's not make small differences appear larger than they are. Doing so misses the real issues, and perhaps the chance to finally solve the U.S. healthcare crisis.

Perhaps there has been too much emphasis on individual mandates at the expense of drawing the larger and more important distinctions between the Republican and Democrat reform plans, though there is still time for that, but mandates shouldn't be ruled out before negotiations over health care policy even begin and it seemed like there was some danger of that occurring.

Health Insurance Markets

Markets don't always work the way we'd like them to, and sometimes it's necessary to impose a change in the incentives faced by firms in the industry in order to steer them in the right direction:

Not-their-fault insurers, by Ezra Klein, Commentary, LA Times: 'The state's largest for-profit health insurer is asking California physicians to look for conditions it can use to cancel their new patients' medical coverage," said the first line of an expose in the Los Angeles Times earlier this month. The subject was Blue Cross' practice of enlisting doctors to help them deny the claims of sick individuals.

What's strange, however, is that everyone acted like the insurer was doing something wrong. ... But Blue Cross officials weren't doing anything wrong. They were doing exactly what we've asked them to do: They were following the incentives of the modern insurance market. ...

There's no law that says we all must have insurance or that insurance companies must agree to cover us. Given that, it's natural that insurers ... turn their attention to making deals with the most profitable among us and avoiding deals (or finding ways to break contracts) with the least profitable. ...

So is it any surprise that they compete over which of them can be the most sophisticated about cherry-picking the healthy from the unhealthy ... and which is the most adept at canceling policies once they become unprofitable?

This is the competition within our insurance industry, and it is not good for us. That can be a bit counterintuitive..., competition is thought to benefit the consumer. But ... competition among insurers does not aid the ill. It might if they were competing to deliver better care to the sick, rather than trying to figure out how to avoid delivering any care to the sick at all. But they're not. ...

It is actually against their interest for insurers to compete on giving us the best care ... given the structure of the marketplace...

Imagine that Insurer X works with its providers to develop the best diabetes protocols in the country. And it begins advertising this fact. What happens on Day Two? It's flooded with individuals suffering from diabetes, or individuals who fear they will one day be suffering from diabetes. These people ... are a bad deal. Not only is it nearly impossible to insure them at a profit, but pooling their costs (which is what insurers do, after all) raises premiums for all the insurer's other customers.

Over time, that encourages healthy folks ... to quit the pool and go find a cheaper deal with an insurer that caters to healthier individuals, which forces the insurer to raise premiums yet again, driving out more healthy folks, which forces it to raise premiums again, which drives out more healthy folks, and so on. It's what industry experts call an insurance death spiral, and it ends with the collapse of the insurer.

Given those incentives, insurers cannot be expected to compete on the basis of better care, because if they encouraged better care, all that would happen is they would attract worse deals. Which is why, in the current system, insurers make things worse.

But it doesn't have to be that way. If insurers existed in a market in which they had to compete on delivering better care, rather than competing on developing better techniques to deny care, we'd be far better off.

Here are the principles such a market would require...1) Universality... The system has to be universal. 2) An end to cherry-picking... Insurers should have to offer insurance to anyone who wants it for the same price. No exceptions. 3) Risk adjustment... At the end of the day, it has to be as profitable for an insurer to insure a sick person as a healthy one. 4) Benefit floors... 5) Information transparency:...

It's not impossible to imagine a scenario in which insurers actually compete to offer better service... But none of this will happen as long as insurers operate in a perverse market in which their incentives are to make the system, and our care, worse. ...