Long Term Care Insurance, RIP

The Obama Administration made a late Friday announcement to finally pull the plug on the long term care part of the health care bill. This long term care plan was known as CLASS, for Community Living Assistance Services and Support. It was designed as a supplemental insurance plan, with people paying premiums during their younger years in return for support when disabled later.

The plan had fundamental economic flaws, deriving from adverse selection effects: the program to be financially sustainable had to have a lot of healthy premium payers and relatively few payees. Analysis suggested that would not happen, with the program instead attracting initially unhealthy patients who would receive benefits for too short a period to cover their costs. If premiums were increased, the adverse selection would only grow worse.

A good description of CLASS is given by the Kaiser Family Foundation here.

Most interesting is that the Congressional Budget Office (CBO) credited CLASS with reducing the Federal deficit by $70 billion over the 10 year period that was used to measure the financial effect of the health plan. How does that fit with a plan that is now recognized as financially unsustainable? Well, there is a 5 year vesting requirement, so over the first 10 years of the plan, more money comes in than goes out...but it all falls apart in the later years. The savings projected from CLASS helped the bill to gain votes and be passed. (Interesting that adverse selection would work so strongly even with the 5 year vesting. I would like to see some of the models that have been used to analyze the program.)

How many other parts of the health care bill were designed as poorly as CLASS? And how much were "savings" from such ideas relied on to get the bill passed? What would happen if CBO were to re-score the bill now?

Health Confusion -- or Consistency?

Two contrasting and interesting issues in health care arose in the last week.

First, we have the US Preventive Services Task Force recommending that men not get routine PSA tests to screen for prostate cancer. See here for one of the thousands of articles reporting the recommendation. Without going into too much detail, I would summarize the recommendation as being based on the test being relatively uninformative, especially in regard to distinguishing between cancers that will progress dangerously versus those that will remain contained. Further tests beyond the PSA -- biopsy -- run risks themselves, and are also unable to finely distinguish cancer types.

The recommendation runs afoul of a core principle in information economics, which is that more information is at worst valueless (and the recommendation is not based on cost of the test).

There are subsidiary assumptions that can make a test be of negative value, but I would like to see them laid out (for example, reliance on an expert for further actions, with that expert biased by an agency problem).

I continue to be bothered by this idea of not having a test. As one of my colleagues put it: Suppose a doctor did a PSA test on you and emailed you the results. You are saying that you would pay for a spam filter to keep from knowing the result? I think it is possible to set up an optimal decision rule based on test results, which given a noisy test, will often lead to no action. But in some extreme cases, it will lead to a biopsy, identification of a severe grade tumor, and surgery that is valuable. The key is to not taking action for many outcomes.

Second, we have a bill in California, passed by the CA legislature, that would REQUIRE doctors to inform women that their mammogram revealed they have "dense" breast tissue. Now I am really venturing outside of my area of even limited expertise, but the idea here seems to be that dense breast tissue can prevent a mammogram from revealing small tumors. So if women have dense breast tissue, their mammogram might not be as accurate, and they might want to have a different screening test.

Governor Jerry Brown vetoed this bill by the way.

So on the one hand, we have a recommendation that men NOT be given a test for cancer, partly on the grounds that it would lead to more testing, while on the other hand we have a law saying that women MUST be given information that will cause those women to have more tests.

While there might be some inconsistency here, the consistent theme is that consumer/patients are not good at making health care decisions.

Medical Marijuana Confusion and Irony

Another story that hit while I was in San Francisco concerns a new crackdown by the US Department of Justice over medical marijuana dispensaries -- see, for instance, "Feds' confusing crackdown on medical marijuana."

Based on my anecdotal evidence, the medical marijuana road is indeed a slippery one. Getting a prescription seems relatively easy, with prescribing doctors and dispensaries sometimes vertically integrated. And allowing medical card holders to grow their own probably allows a reasonable amount of pot to get into the general marketplace.

Irony abounds in the politics around marijuana. The Republicans, who generally favor individual liberty in the economic sphere, want to restrict our ability to do what we want with our bodies and brains. The Democrats, and the liberals, while favoring liberty in the social sphere (to their credit, I would editorialize) generally like to restrict our economic freedom. I trust the Libertarians are the only philosophically consistent ones.

And now we have the Obama administration, that up to now was averting its eye from medical marijuana, getting quite aggressive about policing the dispensaries.

One of the more interesting policing actions is that the Feds have sent letters to LANDLORDS of medical dispensaries, threatening them with alleged violations and pointing out that the penalty could be confiscation of the property.

Maybe this is why there are actually delivery services for medical marijuana in California -- the cost of renting physical property has been pushed up by the threat of confiscation??

Fleet Week in San Francisco!

I have been in San Francisco for the last two days,with one of the true highlights being a very impressive demonstration of US military might -- right over the City! I guess it is Fleet Week, and the Navy's Blue Angels have been flying over the city, showing off really nicely. The jets scream -- literally -- right over the tops of the buildings. Amazing and pretty frightening at times.

The irony of this display going on over liberal San Francisco makes it all the better. I understand that Senator Diane Feinstein actually came up with the idea for Fleet Week.