Reax to Health Care Discussion on Cato Unbound

A former intern (and current medical student) shares these illuminating reactions to the discussion at Cato Unbound about the effectiveness of medical spending:

Hanson’s argument is certainly compelling. I haven’t had much exposure to the practice of medicine, but based on the few patients I’ve seen (and mostly on the clinical cases we go over in class) it seems obvious that so much of what is spent on medical care in this country could be prevented if people would take care of themselves — for example, most people don’t need a kidney transplant because they acquired a bacterial infection that went septic or were born with a rare genetic defect . … [I]nstead it’s often due to diabetes or hypertension, which in most cases are prevented through a healthy lifestyle. 

Indeed, as we are currently going over infectious diseases, I can’t help but think how much must be spent each year on hospital-acquired infections — particularly because they are often resistant to older drugs, and require newer and more expensive inpatient treatments to cure … and of course lead to all sorts of nasty complications that must also be treated.  (Note to self: don’t ever get admitted to the hospital and have various catheters and IVs inserted unless absolutely necessary!). And of course, there are the numerous medical procedures performed everyday that probably have little to no benefit — I can’t tell you how many times I’m told we need to learn how to properly conduct a physical exam, only to be followed by “but nowadays we just order an MRI / CT scan / ultrasound / other fancy imaging just to be sure.”  (!)

I think Dana Goldman and David M. Cutler place a lot of emphasis on the medical innovations that have occurred since the RAND study, and while I agree that a lot of really cool and lifesaving technology has been invented since that study, it seems likely (to me) that the returns have been small compared to the gigantic costs (which seems to be the argument Hanson makes). As several of them mentioned, in order to cut costs intelligently, you would need to distinguish between low-quality and high-quality care. My problem with that argument is, as always, who gets to decide what is low or high quality? Take the example of atherosclerosis — certainly the cardiologists will argue the importance of their catheterization labs and use of stents, while a PCP may suggest a good medication and continuity of care instead (and the surgeon might recommend bypass surgery). Each could probably come up with convincing studies to suggest their treatment is correct — do they get to decide, or does some committee, or does the patient? 

I’m also not convinced that Medicare FFS rates could be effectively changed, as Alan Garber briefly hints at — physicians will still find ways to game the system (consciously or not), and it is unlikely that a large program such as Medicare will ever be able to accurately distinguish between high and low quality while also taking into account the individual needs of the patient. You could probably scale back the medical field to vaccines, antibiotics, prenatal care, and emergency (trauma) care, and not see a change in community health status that couldn’t be overcome by lifestyle changes. 

Don’t get me wrong — I think that a lot of the research being performed (particularly in identifying the genetic components of disease) is really promising from a medical perspective, but asking if it is cost-effective is a different story. That’s why economists seem less biased than doctors — economists see the entire population, while doctors only look at their patients who often are the sickest of the bunch and want to do everything in their power to help. They’re caring and intelligent people, but not always rational in resource-usage. And of course, most patients don’t want them to be — a sick patient often wants to do everything possible to save/prolong their life — this is expected. 

Fact-Checking Mitt

In yesterday’s Wall Street Journal [$], Mitt Romney attempts to differentiate the reforms he signed into law as governor of Massachusetts from the health care reforms Hillary Clinton introduced this week. 

It seems to me that some of Romney’s claims go beyond spin. For instance:

  • “By contrast, both the reforms I led in Massachusetts and the federalist reform plan I recently proposed do not raise taxes or increase spending.”

Nearly everything about the Massachusetts law was a tax increase. When Romney’s HHS secretary Tim Murphy tried to deny that the plan included new taxes, I detailed the new taxes here. Massachusetts also had to increase subsidies more than projected to help people comply with the mandate.

  • “People who don’t obtain insurance through their employer are invited to buy a government-run, Medicare-like plan or enroll in the Federal Employees Health Benefits Program (FEHBP) [under Clinton’s proposal] … . My plan in Massachusetts instead allowed the uninsured to choose a private insurance product from one of the many private insurance companies.” 

The FEHBP, which Clinton proposes to open to all Americans, gives enrollees a choice of private plans. It is no more or less “government-run” than the Massachusetts Connector of which Romney writes. I don’t see how Romney can claim one is government-run and the other is not. (The New Republic’s [$] Jonathan Cohn and others have also noted the similarities between the Connector and Clinton’s 1993 purchasing cooperatives.)

  • “Before you can impose a mandate on employers or individuals to purchase insurance, you need to reform state health insurance markets. Otherwise, policies can be so beefed-up with state mandated coverage and regulation that they are simply unaffordable. Then a mandate is unfair.” 

This implies that Massachusetts reformed its health insurance market so as to remove the beefed-up regulations. But the Massachusetts law did not do that. The Connector Board itself ruled that coverage was still unaffordable for 20% of the state’s uninsured, whom they admittedly exempted from the mandate. If anything, the regulations have become more onerous. About 200,000 residents will have to purchase more insurance than they currently purchase in order to comply with the law.

  • “I chose an individual mandate only after we had done our best to reform state insurance regulations — lowering premiums by as much as 50%…. [W]e worked to reduce the burdens of regulation. The legislature insisted on more coverage mandates and regulation than I would have liked, but even so, less regulation has resulted in much lower premiums.” 

The Boston Globe truth-squads a similar claim and finds the reduction in premiums came from factors like political pressure, restrictions on access to providers, and greater pooling — not deregulation. Moreover, political pressure cannot last, while pooling raises someone else’s premiums to compensate. Overall, premiums under the Massachusetts law came in at more than projected. And premiums in Massachusetts are growing at 8-12 percent per year, compared to 6-8 percent for the rest of the country. Romney may not be responsible for that trend, but does anyone but Romney claim he has done anything to temper it?

I hope someone will correct me if I’m wrong, but I don’t see how Romney can substantiate these claims.

Maryland to Boost Virginia’s Competitiveness

The geese that lay the golden eggs are about to fly south, but not because winter’s approaching. Instead, greedy politicians in Maryland are seeking to impose California-style income tax rates on the state’s most productive people. Even some local Democrats realize this is going to be a boon for Virginia, where the top income tax rate will be about four percentage points lower.

The Washington Post reports on Maryland Gov. Martin O’Malley’s unintentional campaign to boost Virginia’s economy:

Gov. Martin O’Malley yesterday proposed the first major overhaul of Maryland’s income tax brackets in 40 years, offering what he called a “more progressive” system in which high-end earners would pay more.…

“We must be very cautious that we’re not asking people to go live in other jurisdictions, where taxes are not as high,” said Sen. Rona E. Kramer (D), chairwoman of Montgomery [County]’s Senate delegation. “Northern Virginia is a very appealing place, and it’s right across the river.” …House Minority Leader Anthony J. O’Donnell (R-Calvert) called the plan “a historic beating up on Marylanders through the income tax,” noting that the top marginal rate would increase by nearly 37 percent.

…Under O’Malley’s plan, Montgomery residents in the highest bracket would pay a combined state-county rate of 9.7 percent, which County Executive Isiah Leggett (D) said yesterday is “not acceptable.” …The combined rate of 9.7 percent would also exceed the current top marginal rates in the region. In Washington, the top rate is 8.5 percent; in Virginia, 5.75 percent; and in Delaware, 5.95 percent. Maryland would not be alone in imposing higher rates on upper-income earners. California, for example, applies a rate of 10.3 percent on incomes of more than $1 million.

Why Not Let Belgium Disappear?

The International Herald Tribune reports on the growing hostility between the French and Dutch regions of Belgium, which has manifested itself in a three-month failure to form a government. But why is this bad news? First, the absence of a government means that politicians are not concocting silly new ideas to waste money and over-regulate the economy (which is also why gridlock is a good thing in America). But more importantly, why not let the country divorce? Or, at the very least, engage in radical decentralization so that the two regions (or three, if Brussels becomes a capital city akin to D.C.) have complete fiscal autonomy?

[M]ore than three months after a general election, Belgium has failed to create a government, producing a crisis so profound that it has led to a flood of warnings, predictions, even promises that the country is about to disappear. …Officials from the former government — including former Prime Minister Guy Verhofstadt, who is ethnically Flemish — report for work and collect salaries. The former government is allowed to pay bills, implement previously-decided polices and make urgent decisions on peace and security.

…[T]here is deep resentment in Flanders that its much-healthier economy must subsidize the Francophone south, where unemployment is double that of the north. …Belgium has suffered through previous political crises and threats of partition. But a number of political analysts say that this one is different.

The article also has an amusing passage on a TV program that tricked many viewers into thinking the nation was in the process of splitting up.

RTBF, a Francophone public television channel, broadcast a hoax on the break-up of Belgium. The two-hour live television report showed images of cheering, flag-waving Flemish nationalists and crowds of French-speaking Walloons preparing to leave, while also reporting that the king had fled the country. Panicked viewers called the station, and the prime minister’s office condemned the program as irresponsible and tasteless. But for the first time, in the public imagination, the possibility of a breakup seemed real.

What if We Just Slashed Medical Spending in Half?

That’s the question Robin Hanson poses in the most recent issue of Cato Unbound.  His answer?  We’d probably be better off:

We could cut U.S. medical spending in half without substantial net health costs. This would give us the equivalent of an 8% pay raise.

Hanson entertains responses to his essay by distinguished health economists David Cutler, Dana Goldman, and Alan Garber – who are not as dismissive of Hanson’s thesis as you might expect.

Hanson was my health economics professor.  Only later did I learn he does not have a degree in economics.  (Insert your own credibility-shattering joke mcannon [at] cato [dot] org (here).)  As he explains in his essay and elsewhere, “Most students in my eight years of teaching health economics have simply not believed me, even after a semester of reviewing the evidence.”

I was familiar with much of the evidence presented, and so I found Hanson’s argument plausible.  But I am not so familiar with the evidence to be confident that I could find the holes in Hanson’s argument.  So I did what any student would do: I put my professor on the hot seat with A-list economists from Harvard, Stanford, and Rand.

So far, the discussion has been everything I hoped.  But it hasn’t yet zeroed in on the heart of the contributors’ disagreement.  I hope they will all stay engaged. 

Will American Capitalism Be Surpassed?

Sallie James hit the nail on the head in her blog post today: ”business deals, and not formally negotiated trade agreements, are driving globalization.”

That made me think of this Deutsche Post webpage I came across. 

It sounds spectacular: The world’s largest shipping and logistics hub at the world’s largest airport, all in low-tax, freewheeling Dubai.

America used to do great stuff like this. But while we’ve still got a moribund and bloated government postal service, Germany’s privatized Deutsche Post seems to be at the leading edge in global shipping and business services.  We’ve got congested, government-owned, and union-dominated seaports, while Dubai will be host to a huge and efficient intermodal system.

America still has lots of world-beating companies such as FedEx and Intel. The problem is in Washington: federal policymakers sit on their hands doing little to improve economic productivity while ambitious upstarts such as Dubai and Ireland are providing more freedom and more opportunity for businesses to grow.

Misguided Tax Advice from National Review Editor

I have known Ramesh Ponnuru for years, and we have always had a friendly debate about tax policy. He generally thinks my ideas are economically sound, but politically misguided, a reasonable concern given the hybrid class-warfare/special-interest mentality in Washington. But Ramesh’s tax analysis certainly leaves something to be desired. His column in the New York Times asserts that America’s high corporate tax rate is not important for competitiveness – even though researchers have found that the corporate tax burden plays a key role in where jobs are created and how much workers are paid (see this video for more information). Ramesh also argues that present tax rates are not an impediment to “healthy long-term growth.”

Many of our trading partners have cut their corporate taxes, and more and more conservatives want the United States to follow suit. Apparently they haven’t been listening to their own speeches on free trade. Companies compete. Countries, however, are not engaged in a zero-sum contest where one nation’s gain is another’s loss. Cutting corporate tax rates may or may not be a good idea, but we don’t need to make it a priority to preserve our competitiveness. … The primary focus of the Romney and Giuliani tax plans remains high earners. What would be a serious middle-class tax cut? One answer is to expand the tax credit for children. But none of the candidates is proposing to do so, or any other big tax relief for regular folks. … True, an expanded tax credit for children wouldn’t increase economic growth. Growth is good, and more growth is better. But present tax rates are perfectly compatible with healthy long-term growth. There is no pressing need to bring them down to improve growth.

It is true that tax rates are much lower today than they were 30 years ago, and our economy is doing much better as a result, but that hardly is an argument for the status quo. Even if lower tax rates only boost annual growth by “just” two-tenths of one percent, the long-run impact is dramatic because of compounding. Last but not least, Ramesh thinks it is politically wise for Republicans to compete with Democrats by seeking targeted middle-class tax cuts. He admits that child credits and similar narrowly-focused tax cuts will not boost growth, but he argues they will be politically effective. But since when is it the job of Republicans do adopt suboptimal (or even bad) policies for short-term political reasons? And does Ramesh – or anyone else – think the Republicans can out-bid Democrats in offering favors to different constituencies? And if adopting Democratic ideas is the key to Republican political success, how can he explain the political success of Ronald Reagan and the political failure of Bush 41 and Bush 43?