Archive for the ‘Health Economics’ Category

America’s accidental healthcare system

Sunday, March 19th, 2017

The USA has a very inefficient healthcare system that is also the most expensive in the world. About two-thirds of the population receive health insurance as employer-based benefits. Benefits are not taxable, and came into being as a way to attract workers when wages were frozen during the second world war.

FT columnist Rana Foroohar has written an excellent column that explains why the system works so poorly and why neither Obamacare, nor the Republicans’ proposed replacement, can mend it.

America has a healthcare market that is not anywhere close to what Adam Smith would have considered functional. It has almost no price transparency (you don’t get a bill until weeks or months after you’ve made treatment choices), is controlled by vested interests (doctors, pharmaceutical and insurance companies) who exert monopoly power against the businesses and consumers they are supposed to service, and is highly fragmented and inefficient.

All this contributes to the fact that the economic implications of rising health costs on not just individuals, but American business itself, have been poorly understood. In the 1950s, healthcare made up only 7 per cent of total worker compensation; today, it’s 20 per cent. Given that, it is no surprise that as healthcare costs in the US have gone up, wages have stagnated.

Rana Foroohar, “Employers can help fix American healthcare“, Financial Times, 20 March 2017 (metered paywall).

Turkish-American journalist Rana Foroohar (born 1970) is the FT Global Business Columnist.

Ms Foroohar calls on employers to ‘help fix’ the broken healthcare system. She ignores the single-payer solution because it “is still an ideological leap too far for US business.” But Medicare for the elderly, and Medicaid for the poor, exist. These (despite opt-out provisions) are single-payer systems that cost less than employer-based insurance plans. Reform of US healthcare can be done with a simple reduction of the age of eligibility for Medicare from 65 years to zero. Employer-based benefits could continue for benefits not covered by Medicare, such as private or semi-private hospital rooms. Importantly, they could also be taxed as part of employee remuneration.

repealing and replacing Obamacare

Saturday, February 25th, 2017

A draft bill to repeal and replace Obamacare has been leaked to the press. According to “The Hill”:

The bill would eliminate subsidies for people to obtain coverage, and federal funds for states to expand Medicaid would be phased out in 2020. The mandate for people to buy insurance would also be killed.

Peter Sullivan, “Leaked ObamaCare bill outlines GOP plan“, The Hill, 24 February 2017.

That’s the “repeal” part. According to “The Hill”, here is the gist of the replace part:

The plan calls for a tax credit, which would increase based on a person’s age, to help recipients afford insurance. The credit would be between $2,000 and $4,000. ….

In contrast to ObamaCare, the credits are not based on income, which Democrats argue means not enough help is given to low-income people to be able to afford coverage. Republicans say income-based credits discourage work.

The tax credits are per year, not per month, and they are flat, increasing only with age. (Note also, that tax credits are useless to the unemployed, or the very poor, who have little or no income tax to pay.) As an alternative to the individual mandate, the plan allows insurance companies to charge applicants an additional 30% on premiums if they wait until they are sick to sign up. (more…)

Breitbart News

Sunday, February 5th, 2017

I promised to read opinion pieces written by those whose views differ sharply from mine, beginning with Breitbart News. Well, this is a beginning. I confess it is the first time that I have ever read Breitbart News, and it was an interesting experience. Much of it seems, to me, to be satire, except that it isn’t. (more…)

chart of the day

Tuesday, January 17th, 2017

US healthcare is in urgent need of reform not only because medical costs are high, but also because expenditure is concentrated in a small segment of the population Expenditure per person is high, even though most of the population has very restricted access to healthcare services.

The US spends far more on health per person than any other country (measured at purchasing power parity), yet the life expectancy of the American population is shorter than in other countries that spend far less.

Americans spend five times more than Chileans, yet their lifespan is shorter than Chileans by roughly five years. ….

The chart … hides another peculiarity of US healthcare: the top 5 per cent of spenders account for almost half of all healthcare spending.

Federica Cocco, “The problem with US healthcare in one chart“, Financial Times, 17 January 2017 (gated paywall).

average and median life expectancy

Wednesday, December 21st, 2016

An important unpaid resource of the Financial Times is its stable of intelligent, observant readers. Here is an example. Last week the paper published an op-ed written by British-Indian science journalist Anjana Ahuja.

Today, the FT published the letter of a reader who caught an error in Ms Ahuja’s column.

[Anjana Ahuja] states that “most American babies born in 1900 failed to live past 50”: it is true that life expectancy in the US in 1900 was approximately 47 years. However, it needs to be recalled that a life expectancy calculation is an average or mean; to be precise, a weighted average expected number of years of future life as of a given point in time, in this case, birth. However a claim about the age below which the majority of a given birth cohort will die, is a statement about the median age at death rather than the mean age at death.

Life expectancy calculations at birth, especially those calculated before the mid-20th century, can deviate significantly from the corresponding median ages at death due to the effect of infant and childhood mortality rates. As it turns out the calculated median age at death for the US 1900 birth cohort was more like 56 or 57.

Peretz Perl, “How life expectancy calculations deviate“, letter to the editor, Financial Times, 21 December 2016 (metered paywall).

This is an important point. The mean simple average) and the median measure different things. To illustrate with an exaggerated, hypothetical case, suppose we have a sample of 100 individuals born in the same year, 40 of which die at age 5, 50 at age 50 and 10 at age 70. The average (mean) life expectancy at birth for this cohort would by 34 years. But the median life expectancy would be 50 years. Why? Because this is the life expectancy of the median person, i.e. the life expectancy of the 50th person (the median!), arranging all individuals in order of their years of life.

I may be wrong, but my impression is that few in a population of supposedly well-educated people are able to distinguish between a mean (simple average) and a median. If Ms Ahuja, who has a PhD in space physics, confuses the two measures, anyone can.

The median is useful concept. I think it should be taught in middle school, or even earlier.

Alas, life expectancy changes over time, typically increasing, so calculation of the median for a specific cohort becomes more difficult. Mr Perl goes on to explain that, for this reason, the  “’calculated’ median understates the actual historical median age at death for that cohort”:

That’s because the standard calculation for such a median age at death assumes that the probabilities of death at each age are frozen at the rates that were applicable in the year of calculation — in this case 1900. The true median age at death for the 1900 US birth cohort was dramatically impacted by the ongoing improvements in longevity as the cohort made its way through the 20th century.

For example, the probability that an American born in 1900 who had survived to the age of 40 would die before age 41 was significantly lower when he or she actually reached age 40 in 1940 than what it was thought to be in when they were born in 1900, and so on. The actual median age at death to which most Americans born in 1900 survived was closer to 60.

Mr Perl displays an impressive knowledge of demography and statistics, far beyond what might be expected even from a Financial Times reader! I googled “Peretz Perl” and discovered he is an actuary at New York-based TIAA-CREF, one of the largest pension funds in the world. That explains everything.

We cannot all become actuaries. But it should be possible for all of us to distinguish between a mean and a median. The concepts are not difficult and, in my opinion, could be taught to students from an early age.

medicare in Canada

Thursday, September 8th, 2016

Medical care in Canada is widely praised, and is indeed excellent, especially compared to the costly medical care system of its southern neighbour. Slowly and illegally, though, in some provinces the system is becoming less universal. If this trend continues, access to basic health care in Canada will depend more and more on price (ability to pay) rather than need.

Dr Ryan Meili, a Saskatchewan physician, appeals for the federal government to restore the universality of medicare by enforcing existing legislation (the Canada Health Act).

Extra-billing in Ontario, private MRIs in Saskatchewan and user fees in Quebec: violations of the Canada Health Act are on the rise across the country. Canadian doctors are concerned about the impact of this trend not only on their patients, but on our public health care system as well.

…. Provinces that are not in compliance [with the conditions for payment under the Canada Health Act] are to be penalized with a reduced Canada Health Transfer (CHT) payment.

This year’s report showed that in 2014-15, the only province that received such a penalty was British Columbia. Their CHT payment was docked $241,637 ….

In Ontario alone, the frequency of such charges has grown at an alarming rate …. [I]ndependent health facilities (e.g. eye surgery, colonoscopy, diagnostic and executive health clinics) charged extra fees for medical consultations, examinations, diagnostic testing and other manners of “upgraded services.” These fees are for services that are covered by the health system. This is otherwise known as extra-billing, a practice that is against federal and provincial law.

Despite these contraventions, … Ontario has never been penalized. ….

User fees, access charges, extra billing all come down to the same thing — inequitable access to Canadian health care.

Charging patients at the point of care for medically necessary services strikes at the heart of the principle that access to health care should be based on need rather than ability to pay. It undermines equity, increases system costs and reduces public commitment to universal coverage. ….

It is time … to ensure medicare will be there for all Canadians in their time of need.

Ryan Meili, “It’s Time For The Federal Government To Enforce The Canada Health Act“, The Blog, Huffington Post, 4 April 2016.

Dr Meili (born 1975) is a family physician. He teaches at the University of Saskatchewan’s College of Medicine, where he heads its Division of Social Accountability.

HT Chris Willmore.

US spending on health care

Sunday, August 21st, 2016

Despite Obamacare, the United States continues to spend vastly more on health care than any other country in the world, with generally worse outcomes.

Part of the reason for this waste is the burden of administration costs that come with private insurance plans. Obamacare retains private insurance for those not eligible for public insurance (Medicare – limited to the elderly and disabled), and it is supposed to be mandatory. Not all states comply with the mandatory requirement, so healthy young people tend to purchase insurance only after they become seriously ill. Insurance companies are not allowed to charge higher premiums for those with pre-existing health conditions. Premiums increase, of course, when the healthy opt out of insurance.

There are other reasons, as well, for the high cost of US health care. Timothy Taylor, the ‘Conversable Economist’, discussed all this more than four years ago in a post that, sadly, is still relevant today.

A single-payer system – such as Medicare for the elderly and disabled – would lower the cost of health care, but only one presidential candidate (Donald Trump) has come out in favour of this reform. Medicare is very popular in the United States, so I cannot understand why it is politically difficult to lower the age of universal coverage from 65 years to zero.

Here is the concluding paragraph of Timothy Taylor’s post from May, 2012. Click on the link to access the full post, which contains links to more information.

The question of why the U.S. spends more than 50% more per person on health care than the next highest countries (Switzerland and Netherlands), and more than double per person what many other countries spend, may never have a simple answer. Still, the main ingredients of an answer are becoming more clear. The U.S. spends vastly more on hospitalization and acute care, with a substantial share of that going to high-tech procedures like surgery and imaging. The U.S. does a poor job of managing chronic conditions, which then lead to episodes of costly hospitalization. The U.S. also seems to spend vastly more on administration and paperwork, with much of that related to credentialing, documenting, and billing–which is again a particular important issue in hospitals. Any honest effort to come to grips with high and rising U.S. health care costs will have to tackle these factors head-on.

Timothy Taylor, “Why Does the U.S. Spend More on Health Care than Other Countries?“. Conversable Economist, 14 May 2012.

US vs UK healthcare

Tuesday, May 17th, 2016

FT journalists Aimee Keane in New York and Hannah Murphy in London compare healthcare systems in the two cities. Their article compares the experiences of one man in each city, aged 28 and 27 respectively, who fall ill and are diagnosed with multiple sclerosis (MS).

Each system has flaws. An important distinction is costs – and who bears them. The New York patient was fortunate to have private insurance through his employer. His diagnosis was speedy (one day), but he had to pay the first $2,000 of the $14,367 bill for a single day of care. The British patient, with access to universal healthcare (NHS), had to wait two months for a diagnosis, but paid nothing out-of-pocket.

In the US, access to affordable medical care is a critical factor. According to the National Multiple Sclerosis Society in the US, 70 per cent of MS patients report “some difficulty” paying for healthcare and 16.4 per cent report “a lot of difficulty”.

The US healthcare system is run largely by the private sector. For those who do not qualify for the government assistance programs designed to help low-income families and the retired, access depends on insurance plans offered by an employer or on, the online insurance marketplace created through the Affordable Care Act of 2010, otherwise known as “Obamacare”.

The Milliman Medical Index, which measures the out-of-pocket cost of healthcare for a typical American family of four, on an average employer-sponsored plan, came up with a figure of $24,671 for 2015. According to Milliman, the actuary that publishes the index, this number has almost tripled since it began tracking these costs in 2001, an increase attributed in part to a spike in prescription drug costs in the US over the past few years.

Aimee Keane and Hannah Murphy, “Managing multiple sclerosis: a transatlantic tale of healthcare in US v UK“, Financial Times, 16 May 2016 (metered paywall).

Keane and Murphy fail to mention that UK residents can use private hospital and clinics, and purchase private insurance, if they desire. Speedy attention is available in the UK – at a price. The UK healthcare system is analogous to the two-tier system in effect almost everywhere for primary and secondary education: ‘free’ government schools operating as an alternative to private schools that charge tuition.

treating refugees in the Emergency Room

Friday, March 25th, 2016

The Department of Emergency Medicine at the University of Ottawa (Canada) has a blog that might be of general interest. The latest post is on treatment of refugees.

In our current political and social climate, refugee health is undoubtedly going to become an increasingly prevalent Emergency Department (ED) issue. In the past few years, Canada has been accepting an average of 25 000 refugees from all over the world each year; now we have taken the same number of refugees from Syria alone in a span of just a few months. So the need right now is huge! Yet, as ER physicians, we get almost no formal training on the subject, and most available resources are targeted at primary care providers, and don’t apply to our practice setting.

Here we will attempt to filter the existing information into a practical framework that is actually applicable to your ER practice. This is intended for refugees in the ED in general, but includes some specific recommendations for the Syrian refugee population.


Thara Kumar, “Refugee Health: A Framework for Emergency Physicians“, EMOttawa, 24 March 2016.

The blog continues at the link above. Dr. Thara Kumar is a 3rd year Emergency Medicine resident at the University of Ottawa.

voluntary reciprocal altruism for transplanted organs

Saturday, March 19th, 2016

There are shortages almost everywhere of organs for transplantation. Too many people die waiting for an organ donation. This tragedy could be alleviated with a simple and feasible policy: voluntary reciprocal altruism. Five Canadian researchers explain how the system might work.

In Canada, as in many other jurisdictions, the demand for transplantable organs far exceeds supply. ….

Overall, Canadians are five to six times more likely to need an organ transplant than to become a deceased organ donor. …. The consent regime in Canada remains an opt-in system focused on the theme of gift giving. This … system is based on the principle … [that] access to the transplant waiting list … is a right without any responsibility to contribute to the supply of transplantable organs. ….

[One strategy] … to increase deceased organ donation … [is] voluntary reciprocal altruism. With this approach, individuals who agree to donate their organs upon death are promised priority on the waiting list should they require a transplant in the future. The basis of this approach is that if their self-interest is engaged, a prospective donor is more likely to overcome the natural reluctance to donate their organs.

S. D. Shemie, L. Hornby, J. Chandler, P. Nickerson, and J. Burkell, “Lifetime Probabilities of Needing an Organ Transplant Versus Donating an Organ After Death“, American Journal of Transplantation 11:10 (October 2011), pp. 2085–2092.

The paper is not gated, so can be accessed at the link above, or directly from the publisher.

HT Christopher Willmore

Despite its promise, there are few examples of voluntary reciprocal altruism; at least the authors cite very few.

Opt-in and opt-out systems are both voluntary so voluntary reciprocal altruism could describe either. I would emphasize, more than the authors do, the usefulness of moving from opt-in (express consent) to opt-out (presumed consent) along with a move to reciprocity. Singapore’s voluntary reciprocal altruism system works with presumed consent since, according to Shemie et al (p. 2088), “those individuals who opt out of the system are assigned a lower priority on the transplant waiting list should they ever need an organ”.

Canada has an opt-in system for organ donation, which might explain in part the reason it has one of the lowest donation rates among high-income countries, even though Canadians express high support for organ donation. Many just don’t get around to opting in, or even know how to do it. In British Columbia, where I live, it is necessary to opt-in online. In the past, it was possible to sign your driver’s license or provincial health insurance card. The opt-in method now varies from province to province in Canada.

I have given my consent for organ donation in British Columbia, even though it earns me no points should I need a transplant. Who knows, perhaps if I earned a preference for access to donated organs, I may have been more eager to place my name on the donor list. That is the reasoning, at least, that underpins the strategy of voluntary reciprocal altruism