Sunday, September 27, 2009

Europe tilts right while US spins left?

Angela Merkel is celebrating --sort of -- in Germany. Her party, the CDU, did not do all that well, but the Free Democrats upped their percentage to 15% from 10% in 2005. The Free Democrats are more pro-market even than the CDU. See the NYT's coverage.

The left-leaning Social Democrats (SPD), with whom Merkel had to have a grand coalition with over the past four years, reached its post-War low in election percentage.

Merkel can now govern with a partner that is more in line with her own more conservative philosophy.

Interesting. After the biggest economic disaster since the Depression, with all the press blaming markets, Germany of all countries doubles down and bets even more on a free (r) market economy? Or am I misinterpreting this?

Saturday, September 26, 2009

AIDS Vaccine Success (Funded by NIH)

Good news this week on the AIDS front, with mild success reported from a vaccine trial. See David Brown's reporting on it in the Washington Post.

The trial involved more than 16,000 men and women in Thailand, and it cost $105 million. Most of that came from the United States' National Institutes of Health, through the National Institute of Allergy and Infectious Disease.

Just for the record, the entire NIH budget is counted as health care spending by US residents when those tabulations are made of the percent of GDP that we spend on health care.

Wednesday, September 16, 2009

The Baucus/Senate Health Plan

Senator Max Baucus released the Senate version of a health care proposal today, and the New York Times said it "meets many of the requirements that President Obama laid out in his address to Congress last week."

What shocks me about the Baucus bill is the 35% tax on health coverage over certain amounts -- $21,000 for a family. The Times reports this, misleadingly of course, as follows:
"...the proposal would impose a new, 35 percent excise tax on the most expensive group insurance plans, those costing more than $8,000 for individuals and $21,000 for families."

Actually, the language of the proposal makes it abundantly clear that the total amount to be considered as the "limit" includes the total cost of health insurance provided to employees, whether they pay for it directly or the employer does, PLUS any dental, vision or other health coverage, PLUS the amount that an employee or the employer deposits into a Flexible Spending Account.

This year at Dartmouth the most expensive family health coverage costs $18,300. Add to that $1850 for dental coverage and the maximum $5,000 flexible spending employee contribution and you get $25,154. With a 35% surtax on the excess over $21,000, that means someone (look in the mirror) will end up paying about $1450 in additional tax (or change their health coverage). So now we know what the folks in DC consider to be a "gold-plated" insurance plan -- look no further than your own.

The President and others have been very vocal on how their proposals will not require those with insurance to change anything. In the President's words to Congress the other night: "Let me repeat this: nothing in our plan requires you to change what you have."

OK, so if someone holds a gun to my head and says, give me $1500 -- does that mean they aren't requiring me to change anything I do?

One might think that since health care benefits are provided taxfree right now, that starting to tax them is perfectly fine. In principle, yes. But not in this piecemeal, add-on, excise tax fashion!! If you want to really improve the health care insurance situation, sever the cord binding employees to get their insurance from their employer by giving the employee a tax credit for insurance no matter who they get it from. In the process, if we limit the tax deduction to a certain amount, I could live with that.

And I have just begun to read the Baucus plan. No doubt new gems lie to be discovered.

Friday, September 04, 2009

The Trifecta of Health Care Fallacies

I have already written about some of the fallacies involving health care outcomes across countries and the alleged negative role of insurance companies and their pursuit of profit.

The third big area of fallacy and outright misinformation involves the measurement of health care expenditures in the US and as compared to other countries.

This trifecta of fallacies, pushed onto the American people by the alliance of proponents of health care change and the liberal media, have convinced most people that health care in the US is of low quality, that we pay too much for it, and that insurance companies are greatly to blame. Yet if you ask most people, they are actually quite satisfied with their own coverage. You know that the media have been successful when most people think their situation is fine but think that everyone else is really suffering.

As to the measurement of health care expenditures, there are myriad problems in just measuring how much one country (the US) spends, much less comparing that to other countries. The situation of cross-country comparison is compounded for health care relative to other goods and services because in many countries health care prices are controlled or the entire sector is nationalized. How can we use prices or wages in a country like the UK to measure how much of that nation's resources are being used in health care, when that sector is nationalized but other sectors are not?

But let's ignore that elephant in the corner for a little while and focus on some other interesting issues involving the US expenditures on health care.

If you look around for US expenditure data, you will quickly land at either the OECD site or the Research, Statistics, Data and Systems: National Health Expenditure Data site of the Centers for Medicare and Medicaid Services. The OECD has the cross-country data, but it takes a while to download the whole thing and learn how to use it. (Also, interestingly, as soon as you try to pull out data from more than one country at once, you are presented with a window saying: "Please be careful regarding cross-country comparisons. We advise you to consult the Sources and Methods concerning the data you have selected." I wonder how many people then check the box with "Do not display this window anymore."!)

The number for the US that is typically reported is that we spend $2.2 trillion, or 16.2% of our GDP, on health care. I have often heard that number, and always wondered if I should trust it. The answer of course is no, and I proved that to myself with just a bit of checking. Where should I start -- so many fish to catch, and so little time! The source of much of my discussion is from the Sources and Definitions document from the Health and Human Services site noted above. As we go through this, have in mind that to a great extent what that total expenditure number represents is a summation of what we spend as a nation when we buy health care: so when you go to the hospital and your insurance company (or employer if they are self-insured!) pays the bill, that gets counted as health care expenditure.

Now in all of this, I will note how important it is, when interpreting these data, to have a model of the health care industry in mind. A colleague of mine pointed this out, and it is really true. Without some theory to guide one on how, for instance, prices are set in the industry, the data by themselves really say very little.

1. Start with the fact that in that 16.2% number we have included $101 billion of capital expenditures on structures and equipment. The problem here is one of possible doublecounting, or at least inaccurate comparisons across countries based on how different countries account for capital spending and depreciation. Since our health care industry is either for-profit or not-for-profit (with essentially a break-even constraint) we have to assume that the prices of the health care services cover the capital costs. Think of a competitive equilibrium: prices must equal average total cost of providing the service, including the cost of capital. Since the government uses prices to measure how much we spend on health care, by adding capital expenditures again, there is some doublecounting. Interestingly, the OECD recognizes that capex is a different creature and recommends it be reported "below the line." This does not solve the problem in cross-country comparisons however. For a nationalized system like the UK, prices are unlikely to include a capital cost. Thus, if you don't add capex in a country like the UK, you don't even count cost of capital once. So leaving it out of the UK, and comparing that expenditure data to the US is still biasing the US as too high. This is not an insignificant amount of money.

So when a hospital buys an MRI machine, that total amount gets counted that year in expenditure data. Then I go to get an MRI, pay the hospital for that and in that price is an implicit payment for the machine, and that gets counted again!

(Note: In calculating GDP, capital goods do get added in, even though the cost of those will get reflected in prices. Depreciation gets subtracted when we move from GDP to net national product and national income. So in a sense, GDP has this same doublecounting problem, in that capital goods get counted once when they are bought and then again as they are reflected in prices of goods and services. The problem in health care is really then not so much with intracountry calculations but inter-country, when countries treat capital expenditures and prices differently.)

2. The data for the US includes the entire NIH budget and a good chunk of the NSF budget as well. For those of my colleagues in the life sciences who are getting all their research funded through grants, perhaps you will be surprised to learn that you are part of the problem. Of course, with "overhead" rates on grants from places like the NIH running close to 50%, there is also a lot of funding of general university overhead in the NIH budget. Cross country comparisons are rendered problematic when we realize that other countries fund their universities through direct payment rather than through the US' s reliance on "indirects."

3. Now here is a subtle one. But note again that the basic calculation for the US number is to add up how much we spend on health care. So when you go to the hospital and pay for a service, you pay for all costs incurred in the provision of that service -- wages, benefits, taxes, capital costs. Ah, to the extent that we have for-profit entities providing health care, those prices include corporate income taxes. Is that a cost of health care? Well, in the UK health services are exempt from the VAT, which is about 20% on the rest of UK GDP. Oops! Yet another not-insignificant incomparable.

4. And now another more subtle doublecounting. Again, those prices we pay for health care have to cover all the costs of the health care provider. Part of that cost is the cost of the health care benefits to the provider's own employees -- think of the staff of the hospital. So when a staff member of the hospital goes to the hospital herself, that gets counted once as a health care expenditure. But -- and I agree this is subtle -- that (expected) expenditure is already represented in the prices that are being paid by everyone else. Presto -- another very significant doublecounting.

Well, that should be enough to make anyone start wondering how much of GDP we really spend on health care, and if our spending rate is really that much higher than other countries. And again, the elephant in the room is that many other countries, if not all, have significant wage and price controls on the health sector, if not having that sector entirely nationalized. I have no doubt that the US could dramatically reduce its measured share of GDP spent on health care if we, say, reduced all doctors' fees and all drug prices by 25%. Is this the way we really want to go -- a system where our very imperfect political mechanism determines prices and profits for the people and companies that are protecting our health?