Hypothetical Mean

Commentary from an Actuarial and Economic Perspective

Archive for August 2007

White Flour, Terrorist Threat

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On August 24, Dr. Daniel Salchow, of New Haven, CT, was charged with breaching the peace, a Class D felony. His crime? Laying a running trail in flour. White flour, that is.

The Hash House Harriers, an international running group, has been laying running trails in white flour for almost 70 years. When an elderly lady saw someone dropping piles of white flour in an Ikea parking lot, she called the police. As runners finished their run, they alerted Dr. Salchow of the problem. He promptly rode back to Ikea to resolve the situation. Too late. Somehow, it took until 8:15 to wrap up the threat.

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Written by Victor

August 28, 2007 at 3:51 am

Posted in Terrorism

Single Payer Wealth Transfers

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Megan McArdle has a thought provoking piece on the morality of transfers inherent in a single-payer health care financing system. She focuses on the morality of paying more benefits for older and wealthier people at the expense of younger workers. One of her commentators pointed out that most people are eventually part of both classes, blunting her analysis somewhat.

But a single payer system does not require preferential treatment of either young or old. All it requires is that some groups will benefit and some groups will be harmed relative to the status quo.
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Written by Victor

August 22, 2007 at 5:50 pm

Posted in Health Insurance

Infant Mortality in the USA

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NPR’s Kathy Lor documents the Mississippi Delta’s rise in infant mortality. This increase in mortality is occurring despite the provision of health insurance via Medicaid. Health Department clinics have closed; Medicaid bureaucratic hurdles have increased; provider participation has declined because of low reimbursement levels; and racial and socioeconomic demographics contribute to the problem.

We have healthcare delivery problems in this country and we have unique geographic, racial, and cultural constraints.

If universal coverage is achieved by expanding our government’s failing healthcare financing system, do not expect improvement in our infant mortality statistics. Let’s hope that the Jepps family has better luck than these folk in the Delta.

Written by Victor

August 21, 2007 at 3:01 am

Born in the USA

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There was no room at the inn.  Or anywhere in Canada.  Therefore, Karen Jepp’s rare, identical quadruplets were born at Benefis Hospital in Great Falls, Montana, USA.  For those counting, Calgary is Canada‘s third largest city. Great Falls is Montana‘s third largest metropolis.

How could an entire national system not have enough spare capacity for four simultaneous neonatal cases? A clue is provided by the Calgary Herald (linked above):

The Calgary Health Region is picking up the tab for the babies’ U.S. health care — from $1,500 to $2,000 a day for the mother, Karen, and from $6,000 to $7,000 a day for each of the four girl’s stay in intensive care. Had Karen delivered in Calgary, her care would have cost $800 a day, and it would have been $2,500 a day for the quads.

We have more spare capacity (note that this was the 5th time this year Calgary has run short on neonatal space). But we have this capacity because we pay for it.

Should a rural town of 56,000 have a world-class neonatal facility to deliver rare quadruplets? Who should decide? The political system?

In Canada, mothers like Karen are supported by the The Twins, Triplets and More Association of Calgary. The TTMAC is arguing that Calgary’s health system must expand swiftly, and officials agreed. They plan to expand to 18 beds in September (from 16). By early next year, they hope to have 21. I guess that kind of works … as long as the good folk in Great Falls are around.

Also see … SamwickGreat Falls Tribune editorial

UPDATE (8/21): The Charleston Daily Mail has an editorial that clarifies the bed situation. Benefis in Great Falls, MT, has 20 neonatal beds, 25% more capacity than Calgary, and only one less than the proposed Calgary expansion. This is in spite of a 20-1 population difference in the communities (although Benefis also services most of Montana and, apparently, portions of Canada). Women and Children’s Hospital in Charleston (pop. 50,000) has 26 such beds. There appears to be a stark supply difference between the two systems.

Written by Victor

August 21, 2007 at 2:18 am

Equity between Medicare Beneficiaries

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The Center on Budget and Policy Priorities echos MedPAC’s call for “Equity between sectors and among plan types”. It’s a worthy goal. However, their proposals fall far short.

Medicare Advantage Private Fee For Service plans are relatively popular with low-income seniors because they offer greater benefits than traditional Medicare at little or no extra cost. One reason this happens is that these plans enjoy higher reimbursement rates than other Medicare Advantage plan types or traditional Medicare. On April 25, Richard Foster, Medicare’s Chief Actuary, testified that this greater expense causes Part B premiums to increase — for all seniors who buy Part B, not just those on PFFS Medicare Advantage plans. Therefore, some lower income seniors benefit, while all seniors on Part B pay more. As the CBPP notes, this is not equitable.

But eliminating this differential will not restore equity. Here’s why.

Traditional Medicare leaves seniors exposed to high coinsurance, deductible, and copays. As William J. Scanlan for the GAO testified in 2002:

In Medicare, the lack of dollar limits on beneficiaries’ cost-sharing obligations—deductibles, coinsurance, and copayments—puts beneficiaries with extensive health care needs at risk for very large expenses for Medicare-covered services.

To compensate for the cost-sharing provisions in antiquated Medicare benefit designs, millions of wealthier seniors augment traditional Medicare with private industry supplement plans, called Medigap plans. Many of these plans, in turn, provide for “first-dollar” coverage which eliminates incentives for efficient utilization. As the GAO noted in July, 2001:

One study found that Medicare beneficiaries with Medigap insurance had 28 percent more outpatient visits and inpatient hospital days

By increasing utilization, these costs make Medicare itself more expense. According to a GAO study in 1998, the cost impact to Medicare may be as high as $2,000 per beneficiary. Increased Medicare Part A utilization shortens the life of the Hospital Insurance trust fund; increased Part B utilization leads to higher tax contributions from general revenue and higher premiums for everyone.

The Medicare Advantage Private Fee For Service arrangement is simply an extension of what the government has done for years — subsidized seniors who purchase alternative benefit packages. A proposal to eliminate or reduce the implied subsidy to Medigap plans would be political suicide, since affluent seniors would rise in revolt. Apparently, Congress has no such fear of seniors with limited budgets who choose to augment their Medicare coverage through Medicare Advantage.

Written by Victor

August 21, 2007 at 1:50 am

Posted in Health Insurance

Are two Cochlear Implants Better than One?

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Research is beginning to suggest the answer: yes.

In Mr. Moore’s “Sicko”, an American private health insurance company, Cigna, denied bilateral cochlear implants for a child with degenerating hearing. After threatening the company with Mr. Moore’s name, Cigna relented and approved both implants.

Interestingly, Mr. Moore later praises the Canadian system. However, the Ontario Minister of Health claims that it has never funded cochlear implants, let alone bilateral ones. The Ottawa Citizen reports that Josee Mondoux finally did get one hospital to fund a bilateral implant procedure. However, “the costs are putting such pressure on health care budgets that decisions such as confining children to hearing in one ear to save money are being made more often by governments and hospitals, including the Children’s Hospital of Eastern Ontario.”

In Britain, another Mr. Moore favorite, you have to get your Primary Care Trust to OK a bilateral procedure. It is not necessarily easy. Mathew Harvey, 2, finally won his battle against the North Dorset Primary Care Trust, perhaps with the help of the Times.

According to Julie Brinton, head of the South of England Cochlear Implant Centre at Southampton University, “we would very much like to give Matthew two implants — it’s the right way to go. But we understand the PCT’s position. They have difficult decisions to make and they argue that if the money is spent giving one child two implants, another may not get an implant at all.”

The bottom line is that no coverage decision regarding experimental and cutting edge medicine is cut and dried. Somehow, someway, these experiments have to be rationed. This is true in America’s half-private, half-government system, and it is true in the Canadian and British systems.

Would you rather fight an insurance company with a lawyer and potential allies in the state insurance departments, or would you rather fight the government? That is the question Mr. Moore should have been asking.

Written by Victor

August 3, 2007 at 4:36 am

Mandatory versus Voluntary Insurance

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The WSJ reports that access to healthcare in Massachusetts may not necessarily follow from access to health insurance.

A private market with mandatory purchase is different than a private market with voluntary purchase.

When consumers and employers voluntarily purchase insurance, it is in the best interest of health insurance companies to make sure that their networks are sufficiently staffed to meet the healthcare demands of their policy-holders. Failure to do so will result in the subsequent loss of business, since purchasers are buying the insurance as a means to garner access to healthcare.

A mandatory purchase plan provides different incentives.  Some will purchase insurance to comply with the law rather than to obtain access to healthcare.   Insurance companies who offer insufficient networks and correspondingly low premiums will provide an attractive product to this market segment.  How is Massachusetts dealing with this?

For the record, I am not suggesting that this is causing the problems noted in the article.  I suspect that most current difficulties stem from the rather tumultuous state of affairs at the moment.  But because mandatory insurance markets are different than voluntary ones, I would expect problems like the one noted in the article, barring vigilent regulation.

 Matthew Yglesias, Tyler Cowen, Michael Cannon, and Arnold Kling all have different takes on the phenomenon.

Written by Victor

August 1, 2007 at 3:47 am

Posted in Health Insurance