Topic: Cato Publications

Jeff Flake, Take (Another) Bow!

Further to Tom’s post on Monday, our friend Jeff Flake (R–AZ) has written an excellent op-ed in today’s Wall Street Journal (subscription required) on the need for Republicans to apologize for betraying their small-government principles. Mr. Flake points to the farm bill, up for renewal next year, as the best opportunity to ” hew back to our [i.e., Republicans’] first principles.”

Yes, please. And may I propose the dairy policy, one of the most egregious examples of Soviet-style intervention, as one of the first to be reformed? Here’s a study I released yesterday on that very topic.

Bravo, Mr. Flake. I wish you the best of luck.

This Incumbent Was Protected from the Wave

Last week I wrote about the ways the Bipartisan Campaign Reform Act of 2002 made Christopher Shays’ re-election bid more likely.

Yesterday, Chris Shays bucked the national trend and won re-election despite having trailed in the polls for some time. He won by 3 percentage points of the vote. In 2004, a better year for Republicans, Shays won by 4 points.

Perhaps he should send a thank you note to the sponsors of the law, Senators John McCain and Russell Feingold as well as Rep. Martin Meehan and … Rep. Christopher Shays.

Ponnuru Misses the Point

In his cover story for the new issue of National Review, “Conservatives on the Couch” (not yet available online), Ramesh Ponnuru devotes considerable ink to debunking the recent Cato study by David Boaz and David Kirby on “The Libertarian Vote.” I think he misses the point.

Here’s Ramesh:

David Boaz and David Kirby … have recently made an ambitious attempt to claim that libertarians are the swing voters at the center of American politics. Their chief evidence: The 15 percent of voters whom they identify as broadly “libertarian” gave Bush 72 percent of their votes in 2000 and only 59 percent in 2004….

They seem unaware that their data tell more against than for their thesis. The electorate as a whole swung toward Bush during those years: He increased his percentage of the overall vote from 48 to 51. Libertarians swung one way; the remaining 85 percent of the electorate swung the other way, and swung far enough to overwhelm the libertarians. Could it be that the same actions that alienated libertarians won Bush the support of these other voters? Well, yes, it could.

For those keeping score at home, here’s how my card reads: Ramesh, 1; Straw Man, 0!

Ramesh does a fine job of marshaling evidence in support of the utterly obvious. Of course libertarians aren’t the kingmakers of American politics. Of course it’s possible to ignore particular libertarian concerns and profit electorally. If those things weren’t true, much of American history would be inexplicable.

As I read it anyway, “The Libertarian Vote” makes more modest claims than those Ramesh seeks to refute. And Ramesh’s critique leaves those modest but important claims intact.

The fact is we don’t know why libertarian support for Bush declined between 2000 and 2004. Was it the war? Big spending? Social issues? The overall stink of incompetence? Or some or all of the above? We just don’t know.

We therefore don’t know what overlap there is between the issues that underlay reduced libertarian support and those that underlay increased overall support. It’s possible that an alternative-universe Bush administration could have taken positions that maintained or increased libertarian support while increasing support from other quarters as well – thus producing an even bigger victory in 2004 than the one that occurred here (which was pretty anemic for an incumbent with an expanding economy).

Here’s what we do know after reading “The Libertarian Vote.” The group of broadly libertarian, “economically conservative but socially liberal” voters makes up around 15 percent of the population. Historically, these voters have strongly favored Republicans, but their level of support fluctuates and has been trending down of late.

And what does that mean? It means that Democrats might be able to capitalize on those recent trends if they made any concerted effort at all to appeal to libertarians. And by so capitalizing, they might be able to change the outcome of close elections.

And if Democrats started winning by attracting libertarians who used to vote GOP – as it appears they have begun doing in Western states, according to Ryan Sager – libertarians could actually end up as a bona fide swing constituency, actively courted by both sides. And wouldn’t that be fun?

We’re not there yet. Right now, the libertarian vote is only a potentially important swing constituency. It has come into play for reasons we don’t understand well. But it’s big enough, and volatile enough, that it could lend decisive aid to either party that courts it.

Ramesh’s message seems to be that small-government types are unpopular nerds who should content themselves with being allowed to run with the social-conservative cool kids. (Yeah, I know that sounds funny – the conservative cool kids, I mean, not the libertarian nerds.)

I say libertarians can do better than that. And the data in “The Libertarian Vote” show that isn’t just an idle fantasy.

P4P All Over the Private Sector

At yesterday’s Cato policy forum on pay-for-performance (P4P) in Medicare, I argued the Medicare bureaucracy should stay out of P4P largely because Medicare would ruin the idea. A Medicare-administered P4P program would be less flexible than private efforts, more likely to harm patients, and the very providers that P4P aims to discipline would have way too much say in a Medicare P4P program. I recommended confining P4P to private Medicare Advantage health plans. Read my full argument here.

Harvard’s David Cutler argued that Medicare should get involved in P4P because private insurers didn’t have the purchasing power to really force providers to change. At the time, I was unaware of this study by Meredith Rosenthal and her colleagues in this week’s New England Journal of Medicine. They report:

More than half the HMOs, representing more than 80% of persons enrolled, use pay for performance in their provider contracts. Of the 126 health plans with pay-for-performance programs, nearly 90% had programs for physicians and 38% had programs for hospitals.

That probably doesn’t match Medicare’s purchasing power. But it does suggest that P4P can gain a toehold through the private sector.

When Patients Change, Do Providers Change Too?

Harvard’s David Cutler visited Cato yesterday to participate in a small group discussion about cost-effectiveness in medicine, and also in a panel on improving quality in Medicare. (You can watch the latter event here in a couple of days.) My colleague Arnold Kling blogs about issues discussed at both events. 

I am struck by one issue that emerged, which has to do with price-sensitivity, provider behavior, and health outcomes. Cutler argued that when patients are more price-sensitive (i.e., when they have to pay for more of the cost of their medical care), they tend to cut back both on care that would have done nothing for them, and on care that would have helped them. He postulates that if we were to move all Americans into health savings accounts (HSAs), thereby making patients more price-sensitive, we would see worse health outcomes than we see now. 

I am skeptical of that prediction. I think that if the move to HSAs were confined to a small, randomly selected subset of the population (call it “Rand II”), Cutler’s prediction would be more plausible — though by no means certain. There is precious little evidence that suggests — and it does no more than suggest — that for some patients, greater price-sensitivity leads to worse health outcomes. 

However, even if we assume that Rand II would show that greater price-sensitivity leads to worse health outcomes, it does not follow that we would get the same result were the entire population made more price-sensitive. The reason is that with a population-wide shift, the supply side of health care markets would respond to the enormous change on the demand side. Faced with patients who are less eager to consume medical care, providers would have to do a lot more to sell their services, including:

  • conducting research on the usefulness of their services,
  • improving the quality of their services,
  • lowering their prices, and
  • educating patients about the value of their services.

These responses should enable patients to make smarter decisions about what to consume and what to avoid. Instead of having patients cut back equally on beneficial and useless care, they would cut back on useless care more, having more help discerning between the two. Downward pressure on prices should make cutting back on beneficial care even less frequent.

MIT economist Amy Finkelstein demonstrates that the supply side of medical care does respond to demand-side changes. For 30 years, economists believed that the expansion of health insurance (which reduced price-sensitivity) had a relatively small impact on the growth of health spending. That belief was based on the effects of a demand-side study (Rand I), which was too small to induce or measure any supply-side responses to the change in price sensitivity. Using a data set that does capture and allow her to measure supply-side responses, Finkelstein estimates that the effect that the expansion of health insurance had on health spending is six times greater than the demand-side-only experiment Rand I suggests. 

Casual observation suggests that supply-side responses are helping price-sensitive patients make better choices right now. At the same time that HSAs and other insurance options are making millions of patients more price-sensitive, insurers and entrepreneurs are furnishing more of the price and quality information that patients need.

It would be foolish to claim that the supply-side response to price-sensitive consumers would be so great that patients would have perfect information and would never make mistakes. Yet most opponents of making patients more price-sensitive make the equally foolish assumption that there would be no supply-side response to the new incentives coming from the demand side. I say “most” because Cutler and others are not in this group. If I understood Cutler, he acknowledges that there will be such supply-side responses, and that we have no way of knowing whether or how much they would improve health outcomes.

True enough. But it’s something like 50 percent of the debate over HSAs and health outcomes. T’would be nice to have opponents of HSAs and the like acknowledge and engage it.

Health Care Involves Non-Monetary Costs, Too

The Fraser Institute of Vancouver, B.C., has released its 16th annual “Waiting Your Turn” report on waiting times for health care in Canada’s state-run Medicare system.  The median wait for surgical and therapeutic services increased slightly over the 2005 median to less than one day shy of their all-time high of 17.9 weeks in 2004.  Throwing more money at the system doesn’t seem to make a difference; the Frazer Institute has documented that waiting times often increase with increased spending on Canada’s Medicare program.

This year’s report had special significance for me.  Four Sundays ago, I tore my ACL playing soccer.  The following Tuesday, I saw an orthopedic surgeon.  On Wednesday, I had an MRI.  (As a cash-paying patient, I had people offering to cut their MRI list price in half.)  The next Tuesday, I saw the orthopedist again.  He diagnosed the torn ACL and recommended surgery, which he could schedule as early as November 9th.  That’s 4.6 weeks after injury, 3.3 weeks after diagnosis. 

Nadeem Esmail, the lead author of the Fraser report, helped me work out how I would have fared in Canada.  Esmail estimates that, “not counting issues actually getting the referral to a specialist from a GP in the first place,” a typical Canadian could expect to wait:

  • 16.2 weeks to see an orthopedic surgeon,
  • 10.3 weeks for an MRI, and then another
  • 16.5 weeks for ACL reconstruction surgery.

All told, that’s 43 weeks; I could expect to have my ACL reconstructed in early August 2007.  And with a six-month recovery time, I’d be good as new by February 2008.

As it turns out, I’m not having the surgery done on the earliest possible date.  I’m able to walk without too much pain, so I’m taking some time to strengthen my knee, and to research procedures, surgeons, and prices.  Not all waits are problematic. 

But it’s nice to have the choice.  Were I forced to wait until next August for surgery, that would impose significant costs on me and on others.  I would be living in pain, with limited mobility, and might further injure my much-weakened knee.  My wife would have to endure nine additional months of complaining.  Plus, think of all the games my soccer team might lose. 

America’s health care sector is full of waste, but when people say that Canada’s system is cheaper, they’re leaving out some very real non-monetary costs.  Canada’s Supreme Court acknowledged those non-monetary costs in a 2005 opinion that struck down Quebec’s ban on private insurance:

Dr. Eric Lenczner, an orthopaedic surgeon, testified that the usual waiting time … for patients who require orthopaedic surgery increases the risk that their injuries will become irreparable… . [He] also stated that many patients on nonurgent waiting lists for orthopaedic surgery are in pain and cannot walk or enjoy any real quality of life.

The ban on private health insurance effectively kept people from spending more money on health care to reduce health care costs.  (The story of the man who defeated that ban can be found here.) 

Only the individual patient can tally those non-monetary costs and weigh them against the cost of treatment.  If we’re really interested in lowering health care costs, we need to give the patients the money, and let them choose the lowest-cost option.