RAND Health Insurance Experiment II

I reported yesterday on the RAND health insurance experiment:

Thousands of people randomly given free medicine in the late 1970s consumed 30-40% more medical services, paid one more "restricted activity day" per year to deal with the medical system, but were not noticeably healthier.  So unless the marginal value of medicine has changed in the last thirty years, if you would not pay for medicine out of your own pocket, then don’t bother to go when others offer to pay.

The extra medical care induced by free medicine seems to have no health value.  But what do we know about the value of common medicine, used by both those with free medicine and those who shared costs in this experiment?  From a recent summary

Cost sharing reduced the use of effective and less-effective care across the board. …. For hospitalizations and prescription drug use, cost sharing likewise reduced more-effective and less-effective care in roughly equal amounts for all participants. … the experiment measured … the appropriate use of visits and diagnostic tests by providers and the appropriate use of therapeutic interventions after participants sought care. … cost sharing did not significantly affect the quality of care received by participants.

People with free medicine made 30%+ more doctor visits than those who had to pay, but those extra visits were not just trivial visits for sniffles or warts.  The extra visits were just as often to the hospital, their condition was at a similar "stage of disease presentation", and the treatment was later evaluated by panels of doctors to be just as appropriate.   

By all of these measures extra and common medicine looked the same to doctors.  So if common medicine is more valuable than extra medicine, it must be that patients somehow know when they really need help, and make sure to get care no matter what the cost. 

Over 300 publications resulted from the RAND experiment.  The best single source is the 1996 book Free for All?   

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  • http://homepage.mac.com/redbird/ Gordon Worley

    This experiment is truly amazing and strongly pushes me away from the idea of socialized medicine. I used to object to it on political grounds, but having given up belief in political planks in favor of whatever makes sense, is ethical, and is effective, I’ve had no strong reason to believe my pre-existing preference for common medicine was better than any other fully-formed position. But for all the perceived benefits of free medicine (less stress, more people who need treatment getting treatment), this seems to suggest that much of it is just perception.

    I’m curious if this applies just to medicine. For instance, after correcting for effects such as g-factor and family background, I wonder if it makes much difference who pays for a person’s education, the state, the individual (either directly or through cost sharing), or some combination. And I mean at all levels (I’d be especially curious if there are differences, though, between grade school and college, for example).

  • Stuart Armstrong

    More and more interesting. My opinions on health care and medical funding are in flux from these studies, and that’s a pleasant feeling.

    However, I don’t understand how we can conclude:
    So if common medicine is more valuable than extra medicine, it must be that patients somehow know when they really need help, and make sure to get care no matter what the cost.

    Your previous post on hospital visits implied they were dangerous – so having a lot of extra care is dangerous if it includes hospital visits. The dangers may balance the benefits, without patient knowledge having anything to do with it (I think http://econlog.econlib.org/archives/2005/05/deadly_medicine.html makes a similar point – zero may be just zero, or it may be ‘plus 100 minus 100′). But maybe some statistical number crunching on hospital risks confirms your conclusion?

  • Chuck

    I think your at risk of really misleading on this. For example, your “take-away” line, “Thousands of people randomly given free medicine in the late 1970s consumed 30-40% more medical services, paid one more “restricted activity day” per year to deal with the medical system, but were not noticeably healthier.” you base on this quote from the report…

    “For the average person enrolled in the experiment, we observed two significant positive effects of free care relative to cost-sharing:…”

    Please note – your comparing two different kinds of insurance, it seems to me, rather than comparing some insurance to no insurance. That’s quite a big difference to gloss over. It leads people who read your post to conclude that universal coverage wouldn’t make anyone healthier, which isn’t true.

    I’ll paraphrase a description from the beginning of the report you link to (page v): There were multiple plans in 3 categories 1) free, 2) individual deductable, 3) intermediate coinsurance, and 4) income-related catasrophic plans. It does not appear to me that they even study how the how the outcomes of these patients compares to the outcomes of un-insured patients. (When they do make that comparison, it is clear that outcomes are improved when someone has insurance over when they do not.)

    I think you would give your readers a better understanding of health care issues by simply clarifying some termonology. Universal care vs. single payer vs. single provider etc.

    I don’t see how you square the results of this study with the reality of universal coverage systems in place throughout the First World. In all cases the universal coverage systems are in the neighborhood of half the cost per capita as the US system with the same health outcomes. And please don’t tell me they ration care in those systems, because we ration care here based on ability to get insurance and/or pay for treatment. The problem is that this kind of rationing isn’t based on the cost/benefit of treatment vs. no treatment, it is based on ability to pay.

    Finally, any proponent of a “market based” system to “fix” our healthcare system is going to have to explain how regular people (rather than economics professors and think tank fellows) are going to be able to evaluate the effectiveness of treatments relative to costs and in some cases be rational when dealing with life and death decisions. A truly unregulated, libertarian, market-based system is going to be one where doctors are free *and incentivised* to scare patients into procedures and drugs they don’t need.

  • http://profile.typekey.com/robinhanson/ Robin Hanson

    Chuck, I agree that the RAND experiment does not have a treatment of people with no insurance whatsoever. We have to do the best we can drawing inferences from the data we have.

    I don’t know what conflict you see between the RAND experiment results and “the reality of universal coverage systems … with the same health outcomes.” The whole point is that we seem to get the same health outcomes regardless of the amount of medicine.

    I’m not sure why you are describing me as a “proponent of a `market based’ system to `fix’ our healthcare system.” I agree that regular people find it very hard to evaluate the effectiveness of treatments.

  • http://LENR-CANR.org Jed Rothwell

    Robin Hanson wrote:

    “. . . it must be that patients somehow know when they really need help, and make sure to get care no matter what the cost.”

    I have no doubt this is true. Hypochondriacs are rare. Most people can easily tell when they are seriously ill. Everyone I know who has been hospitalized or died from disease could tell.

    More the point, people do not go to the doctor for fun. It is not a pleasant experience. (People suffering from the munchausen syndrome are even rarer than hypochondriacs.) So it is unlikely that people will use medical services “more than they need to.” As for “sniffles and warts” they can be painful and annoying, and they can prevent a person from going to work, which is a serious matter. When people can easily get treatment for such minor ailments, it benefits both society and the patients. It is unfair to chide people for seeking treatment for “the sniffles.” An infected sinus is not a minor problem to a person who has slept only a few hours a night for days on end. Frankly, I find this sort of comment elitist. Perhaps it is made by some young and healthy person who cannot imagine what it is like to suffer for weeks from pneumonia, shingles, or bleeding hemorrhoids. I can assure younger readers that you really do know when you have such problems.

    I have not done a study, but I can point to an anecdotal comparison that illustrates what I mean. I know several poor people, and elderly people, who live in rural areas in the U.S. and in Japan. (I have lived in both countries, and been to doctors and hospitals in both.) The people in the U.S. have minimum wage jobs at places like Wall Mart which offer no health care, and they have no health insurance. When they get sick it is a family catastrophe. They cannot go to work, which means they quickly run out of money. Because they have no access to medical care, and nothing beyond over-the-counter medicine, things like a minor infection or a sinus condition can easily escalate into a major medical crisis. Their children never go to a dentist, and many of them lose all of their teeth by age 30. Dentures are widely advertised and available in rural U.S. districts.

    In Japan, everyone has national health insurance. Everyone goes to the doctor or dentist when he needs to. Doctors charge a nominal sum, but even if you cannot pay you are never turned away. I used to hang out with an alcoholic street-person who lived under the Shinkansen railroad bridge. He went to a good hospital when he needed to, and he still had his teeth at age 60, which would never be the case in the U.S. An elderly widow I know in a rural village still farms at age 80. She has no license and cannot drive a car. She is 40 minutes from the nearest hospital. She and most of the others in that district are impoverished by U.S. standards. They have no indoor plumbing or heating, their annual income is probably less than $12,000 per year, and they grow most of their own food. The people in this district are the oldest in Japan, and Japan has the most long-lived population on earth. This is partly because they have a healthy lifestyle and good diets, but also because they have unlimited access to medical care. A decade ago, this woman felt bad for about a week with an ache in the neck and shoulder. We finally persuaded her to go to the village clinic, which is close by. Like any normal person, she does not like needles, or taking time off from work, but she went. The doctor found she had a severe heart condition. She was rushed to the best hospital in the prefecture and she underwent extensive heart surgery. She was hospitalized for a month or two. The total cost to her was a few hundred dollars. No poor person in the U.S. would get this kind of treatment. First of all, there are no local doctors in rural America anymore; you have to drive long distances, and many poor people do not have cars, or they cannot afford to take time off from work. Second, unless they are old enough for Medicare, they do not have insurance. Their only option is to go an emergency room, where they must wait for hours, and where a doctor may not bother to diagnose a shoulder ache carefully enough to determine it is caused by a heart problem. Most poor people would never go to a doctor for a shoulder ache in the first place. They would simply die instead, never realizing they had a heart problem. I have known many people in the U.S. who lived – and died – untreated from such things.

    – Jed Rothwell

  • http://profile.typekey.com/robinhanson/ Robin Hanson

    Jed, we have many studies trying to explain variations in the health of nations in terms of things like wealth, climate, and medical spending. The usual result of multiple regressions is a zero coefficient on medicine. This applies both to rich and poor countries.

  • David J. Balan

    I guess I’m with Chuck. It doesn’t come as much of a shock to me that the care that’s worth getting if it’s free but not worth getting if you have to pay a deductable or co-insurance isn’t that valuable. It’s an interesting result, and I would have believed the opposite result, but it’s not terribly surprising. And it seems to say very little about the health effects of that we could expect if we gave health insurance to a bunch of poor people who don’t currently have any.

  • http://profile.typekey.com/robinhanson/ Robin Hanson

    David, what do you think it means to give health insurance to people who don’t have health insurance? The main effect is to lower the price of medicine that they face. A randomized experiment where the price of medicine was lowered for some people should therefore be very relevant.

  • http://LENR-CANR.org Jed Rothwell

    Robin Hanson wrote:

    “Jed, we have many studies trying to explain variations in the health of nations in terms of things like wealth, climate, and medical spending. The usual result of multiple regressions is a zero coefficient on medicine. This applies both to rich and poor countries.”

    You have apparently studied sociology. This sounds like the sort of statistics-based statement a sociologist would make. Mind you, I have nothing against sociologists or social science researchers, since my mother, the late Naomi Rothwell, was an expert on those subjects at the U.S. Census Bureau. However, I myself have formal training in anthropology and literature, so I tend to see problems from the point of view of individual people living in villages and towns, and people working in Wall Mart, or growing their own food like my dear old Japanese friend.

    While I have had no formal training in sociology, my mother did teach me to be wary of statistical results that contradict common sense, such as the notion that letting people go to the doctor when they feel sick will have no impact on their health. As I mentioned, I know people who, at age 30, have no teeth left in their mouths because they never went to a dentist. This has a permanent, serious impact on their digestion, the kinds of foods they can eat, their quality of life, and their overall health. I know people who must work all day in factories or stores standing up, even when they have infected lesions on their legs or bleeding hemorrhoids. I have done that myself, albeit out of choice at a physics conference, not Wall Mart. I promise you, it is seriously detrimental to your health for weeks afterwards. I suspect that a person who would dismiss such wretched experiences as mere statistical blips having “a zero coefficient” on medicine – or on people’s lives and happiness – has probably never worked in a factory or store. He has probably not had a chronic, painful, untreated medical condition, with no means to treat it – no insurance, no doctor, no time off from work. I would say this person lacks empathy and the ability to imagine how other people live. I recommend reading Charles Dickens. I hope that such a person, at around age 40 or 50, will finds himself with a severe sinus infection, bleeding hemorrhoids, a skin infection, a colicky baby, and a job he must show up for at 6:00 a.m. or lose his livelihood. I hope it is something like a trade show or a fast food job that demands he stand up and smile at customers for 12 hours straight.

    – Jed Rothwell

  • David J. Balan

    Robin, It seems like there is a big difference between lowering the price from a co-pay/deductible to zero for a bunch of mostly non-poor people and lowering the price from essentially infinity to either a co-pay/deductible or to zero for a bunch of mostly poor people. I’m not sure that much can be learned about the latter from any information that you might have about the former.

  • http://profile.typekey.com/sentience/ Eliezer Yudkowsky

    Jed, I don’t think you understand what statistics mean. They are not a sort of weak extra argument that you weigh in addition to your much more reliable personal experience; statistics are a stronger, more reliable way of looking at the world that summarizes far more evidence than your personal experience, even though it just looks like a little number on paper while all that other experience weighs so heavy in your mind. The people who you describe do not have a “zero coefficient” – they are in the coefficient – and if they are really helped by medicine, there must be others who are hurt by medicine, in equal quantity and severity, for the coefficient to add up to zero. People who are anesthetized for elective knee surgery and never wake up, people given the wrong medications… There is no use arguing against this with vivid examples from your memory. Statistics are more powerful than vivid examples, though not many are capable of comprehending this when the examples are so, well, vivid.

    There’s no cheap remedy I can recommend for changing your view, but you might want to try reading Robyn Dawes’s Rational Choice in an Uncertain World.

  • http://profile.typekey.com/robinhanson/ Robin Hanson

    David, the experiment lowered the copay from 95% to 0%, just as insurance does. The experiment oversampled poor people, and looked specifically at the five general health measures for poor people broken down by initial health status of good versus bad.

  • http://jamesdmiller.blogspot.com/ James D. Miller

    Dear Eliezer Yudkowsky,

    I suspect you are being too hard on Jed. Statistics are often misused and can be very misleading. If you can’t independently determine the quality of some statistical study but the results of this study contradict what you believe to be true then you should be suspicious of the study’s results.

  • http://profile.typekey.com/robinhanson/ Robin Hanson

    James, the question is how much weight to put on a statistical study compared to your prior expectations. There are always reasons to doubt any study, but the question is how they compare to the reasons you must have to doubt your prior expectations.

  • David J. Balan

    Robin, I don’t understand what you mean. As I understand it from the comments above, everyone in the experiment had insurance, just some people had better insurance than others, and that was the basis of the comparison. No one had anything even close to no insurance. Isn’t that right? Also, in my limited understanding of survey methodology, you “oversample” a group if the group is small and you are afraid that your sample in that group will be too small to be representative. But then you reweight those people so that they are back to their actual population share. So oversampling poor people does not mean that it is a study of disproportionately poor people, and even if it were, I doubt would be as poor-heavy as is the population of uninsured people.

    But I haven’t read the paper so you tell me if I got any of that wrong.

  • http://profile.typekey.com/robinhanson/ Robin Hanson

    David, everyone had catastrophic insurance with a high deductible, but that can still leave them paying full price for most of their medicine. They looked separately at just the poor people in their sample and saw no effect on that group.

  • Stuart Armstrong

    They looked separately at just the poor people in their sample and saw no effect on that group.

    Ehr… I just read the summary and they claim

    Serious symptoms[2] were less prevalent for poorer people on the free plan.

    They defined serious symptons as:

    …chest pain when exercising, bleeding (other than nosebleed or menstrual period) not caused by accident or injury, loss of consciousness, shortness of breath with light exercise of work, and weight loss of more than ten pounds (except when dieting).

    And later on they added

    The study suggested that cost sharing should be minimal or nonexistent for the poor, especially those with chronic disease.

  • Chuck

    Robin Hanson wrote:

    “David, everyone had catastrophic insurance with a high deductible, but that can still leave them paying full price for most of their medicine. They looked separately at just the poor people in their sample and saw no effect on that group.”

    It isn’t true that everyone had a high deductable. From the report, there were multiple plans in 3 categories 1) free, 2) individual deductable, 3) intermediate coinsurance, and 4) income-related catasrophic plans. That is from page v of the report. Did I read it wrong?

    Robin Hanson:

    “I’m not sure why you are describing me as a “proponent of a `market based’ system to `fix’ our healthcare system.”

    I apologize if you feel like I put words in your mouth. It seems to me when someone concludes that “free” healthcare is more expensive and doesn’t help, that they would be in favor of a different approach, especially in the context of a fairly libertarian blog. In fairness, you’ve not proposed the approach I described in these posts.

    Bottom line is that I think you are over-generalizing. You are comparing the relative benefit of medicine between two sub-groups of insured people and concluding that in every case (including the un-insured) lowering the cost of healthcare won’t benefit someone, which is clearly not true.

  • http://profile.typekey.com/robinhanson/ Robin Hanson

    Chuck, I mean to say everyone had at least catastrophic insurance with a high deductible. We must draw some general conclusion about the marginal value of medicine. What better source could you suggest than this experiment?

    Stuart, I’m not sure which “the summary” you mean, but because the experiment didn’t find any results according to the statistical tests they originally planned, many people went fishing for results, and reported “significant” results that didn’t correct for their data mining.

  • Chuck

    I’m not familiar with the literature, so I can’t suggest the best among the many, but the report I cited from your last article seems to be relevant, even if it isn’t perfect.

    I think it is sufficient to say something like, “Based on the RAND study, it appears that there are diminishing returns on how much medical care someone recieved in the 1970’s. Comparing the outcomes of no insurance to some insurance was not studied, but as coverage increases, it reaches a point where there is no apparent benefit of any kind, or at least on aggregate the benefit equals the risk.”

    Do you see the difference between that and “Thousands of people randomly given free medicine in the late 1970s consumed 30-40% more medical services … but were not noticeably healthier.”

    If I were to stick with your formulation, I would change it to read, “Thousands of people randomly given free medicine in the late 1970s consumed 30-40% more medical services than others on plans with varying amounts of shared cost … but were not noticeably healthier.”

  • Stuart Armstrong

    Stuart, I’m not sure which “the summary” you mean,

    The summary on the link you gave to the Rand website.

    many people went fishing for results, and reported “significant” results that didn’t correct for their data mining.

    Fair enough. But the Rand report “The Effect of Coinsurance on the Health of Adults – Results from the RAND Health Insurance Experiment” from 1984 (the earliest one I could find) claim:

    Poor people at elevated risk apparently benefited from receiving free care…

    However, they don’t make clear whether this is connected with the spectacles or the hypertension measures. I’ll just categorise it as ‘unresolved’ and move on (after all, a health plan could be easily tweaked to provide extra benefits to the sick poor, if needed).

  • albatross

    An interesting question is whether the added medical spending was mostly at the patients’ request, or recommended by the doctor based at least partly on the existence of good insurance coverage. It seems like we could be seeing a pattern of patients wanting more medical care because of lower cost, or a pattern of doctors recommending more medical care because of higher price.

  • http://econlog.econlib.org/archives/2007/05/should_i_get_la.html EconLog

    Should I Get LASIK?

    Hansonian doubts aside, I’ve been thinking about getting LASIK (laser corrective eye surgery) for a couple of years. By making…

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    Hansonian doubts aside, I’ve been thinking about getting LASIK (laser corrective eye surgery) for a couple of years. By making…

  • http://denisbider.blogspot.com denis bider

    As usual, I’m having some trouble understanding Robin Hanson, who, while the thematics of his posts are interesting, has trouble expressing himself quite as clearly as other contributors to this blog.

    I wonder, for instance, about the value of Robin’s finding that “the marginal value of medicine is zero”. If I can paraphrase this correctly in language that is slightly more plain, the meaning should be: “once you have had the medicine you need, the value of additional medicine is zero”.

    Well, duh.

    Pretty much the same could be said about restaurant meals. Once you have eaten your fill, the marginal value of an additional meal is zero. That is, until you are hungry enough to want to eat again.

    Similarly, the same could be said about transportation. Once you have used a mode of transportation to go where you want to be, the marginal value of more transportation is zero. That is, until you want to go somewhere else again.

    In the same vein, medicine obviously has value when you need it. I once got bitten deeply by a cat, and if I couldn’t get antibiotics, I would be typing this now single-handed. A friend in his thirties got cancer, and if he didn’t get immediate chemotherapy, friends would now be visiting him at the graveyard instead of at his place.

    Given how important their own health is to most people, including poor people, one would expect that the value of free health care cannot be measured by looking at how healthy poor people are. Obviously, if they have any kind of health-threatening condition, and they’re not on a free health care plan, they will scrap up the money they have and give it to the doctors to get help. The difference between a free plan and pay-for-yourself will not be observed in the poor people’s health; it will be observed in their living standards, in their childrens’ education, and so on.

    I’m not saying this to argue that we should be giving free health care to everyone. There are other reasons, including matters of principle, to consider when toying with that idea. For example, do we give free health care to monkeys? If not, then why should we be giving free health care to borderline people? And if we give free health care to borderline people – then I say, we should also give it to monkeys.

    We need to have an altruism cutoff at some point. If we have literally no altruism cutoff, then we need to go as far as to provide free health care to bacteria. A person with no altruism cutoff cannot live, because we depend on consuming other organisms to function.

    Most people draw the altruism cutoff line at the edge of the human species, regardless of the quality of the recipient human specimen. I think such people should speak for themselves, and help others however much they want, but not force the same altruism cutoff on other people, because drawing it at the edge of the human species, including substandard specimens, is arbitrary and is not at all self-evident.

    That would be a principled argument about whether or not there should be universal health care. On the other hand, saying that we studied X poor people, observed that their health did not improve dramatically under free health care, and concluding that the value of free health care must be zero, is misleading, because it ignores differences in other things that were not under consideration in the study – such as, say, whether the poor people’s kids are still going to school.

  • http://meteuphoric.blogspot.com/ Katja

    Denis:

    “the marginal value of medicine is zero” means that the value of more medicine than you are willing to pay for is zero. Whether this corresponds with as much as you need is an issue of contention.

    Obviously for any non-free medicine a person (however rich or poor they are) will have to sacrifice whatever else they would have done with the money, so there will be an effect on their other consumption (school, whatever). Subsidised medicine will undeniably relieve this. However it will also compel them to use a lot more medicine, the benefit of which appears to be zero (at a large cost). Perhaps it would be better to just give them the money in welfare to cover the potential effects on schooling etc. and not pay for all the useless medicine. A usual argument for not doing this (people will spend it all on other things and still have no healthcare) is irrelevant if these costs of not having money for healthcare are borne by their lifestyle (where they are presumed to have spent the money).

  • alex

    If people knew that they weren’t going to get medical care, could they not have been more careful, resulting in better health? Is this accounted for in the study?

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