Archive for the ‘Health’ Category

Thought experiment: Suppose we were to institute a free market in medical finance—that is to say, permit consumers of medical care and producers of financial instruments to enter into whichever kinds of consensual transactions (pertaining to medical finance) they choose, without favoring any particular model(s) by means of public policy. What is there to fear in such a setup?

Concern #1: The poor would not be able to purchase a decent minimum of health care without giving up other essential spending (e.g., shelter). They do not deserve to be in this position—they consciously chose neither their genetic endowments, nor the childhood environments in which they were raised (nor the social circumstances they inherit, for that matter). It is unfair, therefore, to deny them standards of medical care that their more fortunate peers would be able to secure for themselves in the marketplace.

Reply: Indeed. The solution is to transfer wealth from those who have more of it to those who have less of it, up to a point. Such transfers discourage the creation of wealth. We must, therefore, delicately balance our desire for fairness with our desire for prosperity. I do believe, however, that doing so would leave us with ample room to improve the relative plight of the poor.

Concern #2: Cutting poor people checks is only part of the solution. What if, instead of purchasing necessary medical care, for example, a poor person blows her transfer payments on drugs?

Reply: Is she obviously engaging in self-destructive behavior? If she is, then there is a case for encouraging her to spend her money more constructively. A simple subsidy (e.g., a tax break) for buying essential medical care would probably do the trick. If she is obviously harming herself by not having particular financial products (for instance, catastrophic insurance, or a medical savings account), then specifically subsidizing her purchase of these is reasonable enough.

It is worth noting, however, that it is usually not obvious whether someone is engaging in self-destructive behavior. Our everyday decisions force us to make immeasurably complex calculations, which in turn draw upon extensive information about our preferences and the circumstances we inhabit, data concerning which is frequently inaccessible to outside observers.  This is neither to say that humans never engage in self-destructive behavior, nor that outsiders never improve upon the decisions of others. Instead, my claim is simply that it is not often the case that someone is obviously doing harm to themselves. As a consequence, the burden of proof is borne by those who want to encourage people to make different decisions—and it is a heavy burden indeed.

Concern #3: These proposals address the unfairness of some people being less wealthy than others, but they do not address the unfairness of some people being less healthy than others. Why should some have to pay more for medical care than others, simply because their health is in poorer condition (through no fault of their own, needless to say)?

Reply: It is not just sick people who have to pay more than their peers to remedy their God-given deficiencies. Ugly people, too, have to pay more than their peers to look better to others, to feel better about how they look, etc. Stupid people have to pay more than their peers to do better in school, or to do better on the job, etc. These observations do not serve to trivialize poor health. Instead, they underscore the uniqueness of economic inequality as a policy objective.

Usually, a very wealthy sick person is much better off than a very poor healthy person, because a poor person is likely to have many more problems to worry about besides her health, while having few resources to throw at such problems. A wealthy person, by contrast, is likely to have many fewer problems to worry about besides her health, while having a lot of resources to throw at the problem. The problem of poverty is not a problem of having inferior housing, or low-quality education, or inadequate nutrition—it is a problem of not having enough money. To a large (though far from complete) extent, the problem of ill health is a problem of not having enough money, too.

On a more practical note, just as transfers from rich to poor discourage wealth creation, transfers from healthy to sick encourage unhealthy lifestyle choices, which play a large role in shaping longer-term health outcomes (according to some experts, a much larger role than adequacy of medical care). Policies like ‘community rating’ effectively enact such transfers, driving up the cost of medical care in the long run. Consider this one more reason to focus discussions of fairness on economic inequality, rather than on health inequality.

Concern #4: What about spillover effects? Suppose people decide to forgo vaccination for a contagious disease, knowing that they may free ride on others’ vaccinations. Should we not encourage people to get vaccinated? Or consider the fact that our society simply is not going to let poor people with medical emergencies die in the streets. In light of guaranteed emergency care, should we not demand that everyone be able to pay up in the event of a medical emergency?

Reply: In principle, this is unobjectionable. In practice, it is a question of magnitudes. If the social cost of uncompensated emergency care, for example, is very high indeed, then mandating and subsidizing purchase of catastrophic health insurance is sensible enough. Similarly, if a disease is sufficiently dangerous and sufficiently contagious, subsidizing vaccinations is entirely appropriate. Where the social cost is low or negligible, the cure may prove to be worse than the disease, pardon the pun.

Another example relates to our earlier discussion of lifestyle choices. If the reason why uncompensated emergency care is so costly is that people are making unhealthy lifestyle choices (e.g., becoming obese), putting them at risk of various medical emergencies, then it may make more sense, depending on the science, to discourage obesogenic diets than to make insurance mandatory.

Concern #5: Even in the context of a fair distribution of wealth, a free market in health insurance would not work to the benefit of consumers. Since insurance companies would not know as much about a customer’s health as the customer herself, they would have to charge potentially very different customers roughly similar prices. This would cause healthier people to conclude insurance is a bad deal for them, dropping out of the pool, leaving it riskier on average. Responding to this, insurance companies would raise prices, causing still more (relatively) healthy people to drop out of the pool, causing prices to rise further, and so on and so forth. In equilibrium, the market would disappear, failing to serve the medical care financing needs of consumers.

Reply: This problem, known as ‘adverse selection’ in economics, is only a problem to the extent that insurance companies cannot bridge the informational divide. In reality, they work very hard to do this, under the heading of ‘medical underwriting’. Such screening procedures are hardly perfect, but then, consumers’ knowledge of their own health risks is hardly perfect, either. There is little evidence of adverse selection in existing health insurance markets, except in places where public policy actively discourages medical underwriting (e.g., through community rating and ‘guaranteed issue’ policies, which blunt insurer’s incentives to bridge the informational divide). Remember that the goal of such policies (greater equity in the distribution of medical care) is better pursued through explicit transfers, which neither cause adverse selection, nor discourage healthy lifestyle choices.

Concern #6: The case for free markets is premised upon competition. Competition between providers of medical finance ought to, in theory, drive down prices, while increasing quality. Why, then, do premiums keep rising in our medical insurance market? Why do these higher premiums largely support profits rather than better medical care? Is it not because the market for medical insurance is intrinsically non-competitive?

Reply: It is true that the market for medical insurance in the US is hardly competitive, but this is not intrinsic to the provision of medical insurance. Economies of scale in the insurance business do give larger firms a competitive edge over their smaller peers, but there are diminishing returns to scale, and there is little evidence that monopoly, or oligopoly, is the inevitable outcome of a free market in medical insurance. The US medical insurance market is mostly non-competitive due to regrettable public policies.

On the supply side, the US restricts competition between insurers across state lines. Given economies of scale, this encourages the formation of local monopolies. Additionally, a large number of regulations at the state and local levels raise the fixed costs of being in the insurance business, costs which it is easier for larger firms to bear—this, too, encourages insurance companies to scale up beyond what is socially optimal.

On the demand side, employer-provided health insurance is tax-deductible. Consequently, most workers get their insurance plans through their employer. For the majority of workers, the choice of the right job is much more important than the choice of the right health insurance plan. This bit of tax policy thus discourages workers from smart shopping in the insurance market. Employers, in turn, do not really care which insurance plans their employees have, for the cost of these plans is simply deducted from the wages they pay. There is, therefore, little pressure from the demand side for insurers to compete on price and quality.

Concern #7: What, then, should we do about people who, through no fault of their own, would be uninsured because of pre-existing conditions?

Reply: This question reflects a misunderstanding of the concept of insurance. Why do people buy medical insurance? They do so because their health is at risk (e.g., they may get hit by a bus), and they are willing to pay some amount for someone to take the associated medical risk (e.g., expenses for having their injuries treated) off of their hands. Why, then, do people sell medical insurance? They do so because even if the future health status of each of their customers is very unpredictable, the future health status of their entire pool of customers is reasonably predictable. This is a straightforward consequence of the Law of Large Numbers. As a result, insurers take on less medical risk than their customers compensate them for, yielding insurers profit. In short, the value of insurance is that, by pooling the risks of diverse customers, it reduces the aggregate risk borne by the pool as a whole.

What does this have to do with pre-existing conditions? Simple: if you have a pre-existing condition, there is no risk to be insured. For example, if you have cancer, there is no risk that you will demand expensive treatment—this is a certainty. “Insuring” certainties does not add value to anything. What people with pre-existing conditions need is not insurance, it is money. If someone already has plenty of money, public policy need not be concerned with her. If she does not, then the solution, once more, is to give her more money.

Requiring insurance companies to cover pre-existing conditions is to require them to get into a business besides insurance—namely, the business of pre-payment and/or redistribution. We should hardly expect insurance companies to be suited for this. What ever happened to specialization?

Conclusion: I could go on and on, but I think you get the point. There is little to fear in a free market in medical finance that a few, simple, well-designed subsidies cannot fix. Such subsidies warrant caution: I have been writing of the market for medical finance instead of the market for medical insurance, because this is not something we should pre-judge. Insurance was once a novel financial instrument. Innovation in medical finance may one day render it obsolete, which is something public policy should not get in the way of with outdated subsidies. Even today, we likely rely too much upon health insurance, when we should also be relying on medical savings (the tax-deductibility of employer-provided health insurance favors premium-heavy insurance plans over deductible-heavy plans, for example). Insofar as the many purported problems with free market health insurance are really problems, however, the right fix is delicate subsidies, not command-and-control regulation.

With the Supreme Court likely to strike down the PPACA’s individual mandate, comprehensive reform may soon be back on the agenda. Here’s to hoping that future proposals focus on deregulating the health insurance industry, ending the tax-deductibility of health insurance, and converting programs like Medicare and Medicaid into lump-sum subsidies for the poor. If, in such a liberalized, egalitarian environment, many people continue to do obvious damage to themselves by failing to purchase enough medical care, or by failing to purchase the right sorts of financial instruments pertaining to medical care, then we ought to discuss in more detail the merits of subsidizing this or that.

Of course, I have deliberately ignored the elephant in the room—the ballooning cost of medical care itself. For another day, I guess.

Two of the central planks of the Patient Protection and Affordable Care Act (PPACA) go by the names of ‘guaranteed issue’ and ‘community rating’. According to guaranteed issue, no health insurance company is permitted to deny someone coverage based upon a pre-existing condition. According to community rating, insurance companies must offer the same policies to everyone for the same price. The idea is that health status is largely something beyond anyone’s control, and so it is unfair for those who, through no fault of their own, suffer ill health to have to pay a price for it. Whatever you think of the merits of these ideas, they’re embedded (in spirit, despite lots of exceptions) in the PPACA.

The worry, in theory, is that many people will wait till they develop a pre-existing condition to get coverage, saving premium expenses in the meantime. The reason is if they do so, they will not have to worry about being denied coverage because of guaranteed issue, and they will pay the same price then whether they buy it now or not. If people in fact do this, insurance companies will only have relatively sick people on their rolls, forcing them to raise premiums to cover the cost of their claims. Higher premiums, in turn, will encourage the relatively healthy among the insured to forgo insurance, rendering the pool still sicker, driving up premiums more. And so on and so forth.

This problem is known as ‘adverse selection’. The ultimate outcome, in principle, is that the price of insurance will spiral upwards until it is no longer a profitable business, causing a disappearance of the market. This has not happened in any of the states that have guaranteed issue and community rating policies, but it has been shown that their premiums rise faster than in states without those policies. What we can expect, then, is that they will quickly and sharply drive up the cost of health insurance.

The purpose of requiring everyone to buy health insurance is to prevent this spiral from getting off the ground. If everyone has insurance, no one can forgo it until they get sick, making adverse selection a non-issue. Arguably, there are other reasons to be wary of such a mandate, but most experts agree it is essential if community rating and guaranteed issue are to work without causing premiums to explode. If the Supreme Court rules the mandate unconstitutional, leaving these other pieces in place, the PPACA is going to cause a lot of problems no one particularly intended.This is why they may choose to eliminate guaranteed issue and community rating, too, in which case the core of the bill will be withdrawn.

I’m not a lawyer, but for what it’s worth, the mandate isn’t that big a deal. Suppose that the government decided to tax every citizen, to pay for a ‘motherhood and apple pie fund’. They then also decide that they’re going to cut a check of the same size to everyone who has health insurance. Nobody would dispute the constitutionality of either of those measures in the slightest, and yet together they amount to a fine for those who do not have health insurance. The only difference is that this is called a ‘tax’, while the mandate’s fee is a ‘penalty’. Note that the penalty is collected by the IRS, and you cannot go to jail for refusing to pay it. Sounds like a distinction without a difference to me.

Legal opponents raise the question of what limits there are on the government if it can require you to buy something. This, to me, is pretty silly. It isn’t requiring you to do anything. It’s just using the word ‘require’ to stigmatize those who choose not to get health insurance, making them feel like outlaws. It also asks them to pay a fine for doing so. The government isn’t coming into anyone’s home, insisting that they buy health insurance at the point of a gun. They’re just making your life a bit more difficult if you don’t get health insurance. Welcome to society. Sometimes the government has to make certain things more of a headache for the sake of promoting the general welfare. PPACA may or may not promote the general welfare, but saying that the government can’t give you a headache for making certain decisions is to say that the government cannot affirmatively try to solve any social problems at all. If you don’t like the PPACA, try to elect some folks who will get rid of it. Don’t try to make it impossible for the government to solve large social problems going forward.

Drugs to make you sick

Posted: February 22, 2012 by nullpointerexceptional in Health
Tags: ,

Here is a gem I came across while reading an article on the FDA reviewing caffeine:

This is so ridiculous.  I suppose the manufacturers of this product greased the palms of the FDA but good.  How about a cure for Diabetes and Cancer?  There are thousands of young scientists doing just that but they can’t get into clinical trials because they don’t have the funding– but some quack produces THIS and it gets considered and will only be recalled when a few hundred die from it.  The FDA has one thing in mind — Money, and if you have it, they will allow it, hence all the bogus pharmaceuticals designed to keep you or make you sick.  What a world. (CNN.com)

I appreciate alternative views on society but this comment is second to none, well except maybe people that think the gold standard is a good idea, and really show the lack of education on the matter. Being sort of an expert on all things pharma, I can only laugh at what this person has to say and want to educate others which may fall into this same mindset. Queue National Geographic intro music…

First off, of the costs associated with bringing a drug to market only a small percentage ever hits the books of the FDA. Your average drug development costs are on the order of $1 billion once you factor in four rounds of clinical trials compared to the ~$1.2 million associated with a full drug application (roughly .001% of the costs). If you’ve ever seen a drug application (I’ll just assume you haven’t), you’d know that they basically cut down a small forest to print out a hard copy with all the clinical data. The FDA needs a small army of people to review all the data and ensure that the drug company followed industry standards – all people that are paid. Let’s also not forget that just because the company pays the application fee, that the drug is approved. Use your favorite search engine and look for “fda rejections” for a little bit of fun. The FDA is meant to provide reasonable oversight to drugs and devices marketed to the greater public – without them, we’d literally have snake oil being sold as the cure for cancer…

What about a cure for cancer and diabetes? Between these two classes of diseases, billions of dollars are spent in basic research at universities and an unimaginable amount at both big and small pharma. Any time a viable treatment option is found or new potentially viable compound is discovered/created, money is thrown at it. Venture capital goons love throwing their money at these wonder compounds because their few million dollar gamble now could be worth billions in drug sales in the future – sort of like hitting the lottery.  Heck, even universities will spin off commercial entities to bring a drug to market just for a cut of the licensing fees. I have a hard time believing that there are scientist sitting out there with viable compounds or revolutionary treatment having a hard time finding funding – there is just too much money to be made to risk not looking into it further.

It’s the perfect business model: drug companies create drugs that keep you sick so they are able to turn a greater profit off of your warm body, eventually killing you in the long run. If people were not sick in the first place, drug companies would not exist. Ok, so you got sick and now you’re taking a drug – if you stayed sick or got sicker while taking a drug, wouldn’t you stop taking it? I know if I took a drug for my acne and required Chipotle Away in response to a nasty side effect I’d stop taking it. How bout those fun-loving side effects caused by chemo therapy? No one said drug development or treatments were perfect – far from it actually. Drugs and treatments are rated and compared by their statistical likely hood of being effective at treating your symptoms while at the same time weighing the risks of the side effects. Except for twins or the like, the effect a given drug or treatment has on an individual can vary greatly so the expectation of a wonder drug with no side effects, curing your ailment is absurd unless you talk about custom tailored drugs, currently cost prohibitive. Sick people can’t work – people that can’t work can’t pay for prescription drugs, even with Obamacare.

Drug companies are around not because they are money hoarding, evil entities looking to steal your money, soul, and wife but because they improve the quality of life in a statistical sense. Sure some guy might die from a heart attack that might have been caused by a drug or you might be covered in teal polka dots for the rest of your life but if it improves the quality of life for a statistically significant population what’s the big deal? The person knew the risks of taking the drug in the first place (except in cases of shoddy clinical trials but that’s a topic for another day) and valued the potential life without the ailment more than the statistical likelihood of any of the side effects.Case closed, no conspiracy, no cover up.

To the person that wrote the quotation above, next time you get sick don’t take any drugs or antibiotics and see how well you feel and how fast you recover.

On Feb 9, 2012, the second anniversary of her Let’s Move! campaign, First Lady Michelle Obama visited Little Rock Air Force Base (LRAFB), home of the mighty C-130 Hercules, on the second stop of her four city tour. Obama is sojourning across the nation in an effort to promote fitness and nutrition and to unveil a new Department of Defense (DoD) initiative highlighting healthy food on military installations. LRAFB is part of a six base pilot program testing out new, healthier menus heavily featuring vegetables, whole grains, and top grade meats. For years, the DoD has been criticized for serving low quality food in the form of MREs and in the dining halls on military bases. So low quality, in fact, that rumors have circulated suggesting the DoD only purchases and serves “Grade D” meats which are certified for use only on military installations and in prisons. This and similar rumors are false, of course, and the DoD has been striving to upgrade the quality and taste of the food served to the members of our nation’s sword and shield for many years. The pilot program being conducted on LRAFB and the other bases is in support of this change.

The First Lady’s visit to the base included a tour of the dining facility and a brief talk to the service members trying out the healthy menu. During her speech she noted, “[a]ccording to a recent Army study, more than a quarter of our nation’s 17- to 24-year-olds are too overweight to serve in our armed forces today.” This is a very weighty (huzzah for wordplay) and depressing statistic. In 2010, a report from the Trust for America’s Health and the Robert Wood Johnson Foundation found Arkansas to be the 8th fattest state when measuring adult obesity. Well, if LRAFB was included in the statistic, I’m willing to bet Arkansas should be rated somewhere around the 3rd or 4th fattest state without the military population. So, while Little Rock definitely needed her visit to set things straight, she probably would have reached a fatter demographic by giving her talk at a high school or junior college. Haven’t you seen Transformers, lady? Military dudes are fit. Most of them can do more than the 18 girl pushups you did on Jimmy Fallon.

Prior to leaving the dining hall, Brigadier Gen. Eden Murrie, director of Air Force Services (picture) told Obama that “we are working hard to make healthy sexy.” Now while I’m sure Gen. Murrie is highly respected and lauded in her career as a navigator (doubtful), she probably has never been consulted for her insight regarding the issue of sexiness.

 
Recent reviews have claimed the changes to the dining hall and menu are fast, neat, average.