What Med Theory Matt?

Matt Yglesias:

A few points on the insurance status and mortality debate:

— Normally we require overwhelming empirical data to overturn a principle that has strong theoretical support.

— The empirical data to support the “insurance status doesn’t impact mortality” conclusion is not overwhelming. [Matt lists contrary studies] …

— I don’t believe that the people touting these studies really believe them; if widespread beliefs about the desirability of health insurance are totally wrong, this should have dramatic policy implications that should be explored.

Strong theoretical support?!  Here’s what our theories actually say:

  1. If people buy something, they expect positive net value from doing so.  If they do not buy something, they expect negative net value from buying.
  2. On average people tend to be right about what gives them net value.  Yes we err, but that isn’t typical.  Theory does not suggest large values gained.
  3. Insurance is sometimes a good buy, but not always.  Potential insurance customers must weigh moral hazard, admin costs, state-dependent utility, etc.
  4. People are usually but hardly always honest about why they buy what they buy.

So standard theory suggests that those who buy insurance expect a net value, but that those who would not choose to buy expect a net loss if forced to buy.  When people are forced to buy insurance but have the option to to use such subsidized services, theory also suggests that users expect to gain thereby, ignoring subsidy costs.

If we ask people why they buy med insurance, or why they use med services, they usually say they buy to gain health, which suggests that those who buy gain more health.  But this theory doesn’t at all suggest that they get a lot of health.  And the data only suggests the effect is weak, not that it is zero.  Also, this expectation of honesty is pretty weak; data can easily overturn it.

Much of our data on the health effect of med insurance is about forced insurance, which people would not have bought for themselves.  Theory does not at all lead us to expect that this will provide a net gain.  We do expect a net gain from using subsidized services, ignoring the subsidy cost, but not a large gain.  And the only theory that says this would be a health gain, as opposed to some other kind of gain, is the honesty theory, that people are right about why they buy things.

Matt, many of us really do believe that the health gains of subsidized med are on average small, and that health gains may well not be our main gains from med services.  We may instead gain the comfort of showing and seeing that folks care.  The main theory this conflicts with is our common belief that folks are not usually mistaken about why they buy what we buy.  But that is hardly “a principle that has strong theoretical support,” right?

I suspect the problem here is that Matt said “theory” when he meant “common sense.”  Yes our society has a common, almost religious, belief that more med is typically very healthy.  But we do not have good theory supporting that belief.

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  • Robert Arbon

    I would really love to know the mechanism by which this turns out to be true (if it is). Is it that treatment is in general less effective than we think or it is or that people can and do find other ways of getting treated aside from insurance? Or is it a combination of the two? Or something else?

    • There’s an additional factor that sometimes medical care makes health worse.

  • Dallas

    We need to keep in mind that what is often called “medical insurance” is a medical coverage contract, not really “insurance” to cover rare, expensive events. With the discounts obtained by insurance companies being huge (>50% below list cash prices), people are getting part of the discount below list prices as an incentive to buy coverage insurance. The insurance company then gets a percentage of the huge volume of the coverage and gets paid for the huge amount of paper work (none of which is there with cash payers).

    If the Dr.’s, Hospitals, etc. provided the same discounts to cash payers, the optimal solution would be to cut out the insurance middleman and use some sort of savings account to provide coverage and an very high deductible policy for very rare but expensive events above your household liquidity. Cutting out the insurance company paper mill and the Dr’s office billing department would save a huge amount of totally waste effort that produces nothing but dead trees.

  • Bill

    Here are some points to consider.

    The indigent have medicaid.
    The persons who can afford it have insurance.
    Those who cannot afford insurance–those who do not qualify for medicaid and who cannot afford insurance–are those who are affected.
    If you become indigent from medical care, you qualify for medicaid.

    So, you are looking at a wedge of the population.

    Second, you, if you value yourself as an empricist, should ask this question: how would the market prove or disprove the hypothesis that the lack of health insurance would affect mortality.

    Think for a minute: who would make or lose money in the market based on the outcome of this question.

    Answer: life insurance companies.

    When you fill out a life policy, the underwriters demand that you give them the history of who has provided you with health insurance and whether you currently have health insurance.

    If you do not have health insurance, you are more likely to have your policy request being conditioned on getting a physical.

    Call any life insurance actuary or life insurance underwriter. But, don’t bother talking to an economist.

    • Doug S.

      Not all indigent have medicaid. States set their own qualifications; in most places, if you’re a childless, non-disabled adult that doesn’t have any money, you’re just screwed if you want anything other than emergency room care.

      • Bill

        Ok, how much does that affect of the total indigent population?
        Be an empiricists, not an advocate.

      • Dave

        If you get really sick,such as having invasive cancer you can get Medicaid.Over 65,Medicare. If you break your neck ,agencies are out there that will find you care. So,we have no such thing as “no insurance”
        That is why you can’t determine what “no insurance ” means.
        What needs to be discussed is the effect of insurance on preventative care. If preventative care results from insurance,it may be of some generalized benefit.
        Since there are only a few really effective screening tests that really extend life,why not publicly support these. For example blood pressure,cholesterol and PAP smears.
        There are already publicly supported disease categories,such as renal dialysis costing billions. Some of these cases could be obviated by timely screening.

    • Floccina

      One of my pet peeves is people in these discussions who use the word afford but do not define it. For example we in the USA expect people to be able to live just above the poverty line, so one could assume that if all a family’s money above the poverty line amount is greater than their healthcare bills (insurance or amortizing a hospital bill) then they can afford it. I doubt that is what most people mean when they claim that people cannot afford medical care.

      So what do you man by:
      Those who cannot afford insurance–those who do not qualify for medicaid and who cannot afford insurance–are those who are affected.

      • Bill

        My definition of afford would mean that a parent would have to forgo assisting a child in their education, having to pick a less effective course of treatment because of cost, forgoing dental work for children. It does not include cable television.

      • Floccina

        Bill that is still awfully vague can you estimate some numbers on it.

        have to forgo assisting a child in their education

        Education is free in the USA as is also most schooling.

        having to pick a less effective course of treatment because of cost

        Again Still to vague. Is that before they moved into the $300/month rent mobile home or grandma’s basement or after? There are people making $70K who say they cannot afford health insurance and people making $25K paying for health insurance.

        It is just too vague. BTW when I was 30 (I am about 50 now) years old I lived a mobile home that I bought for $3,000 lot rent was $150 per month.

      • Doug S.

        Only education through high school is free. College is expensive.

    • Pete Caneer

      When you buy life insurance you do NOT need to provide information about your health insurnance. Virtually every life insurance company requests a brief insurance exam that involves a blood draw and urine sample plus a questionnaire. Some don’t but virtually all the best rates are provided this way. Don’t make statements that aren’t true. Life insurance risks are based on your overall health — not whether you have health insurance or not.

      • Bill

        Actually, I checked with an in house attorney at a life insurance company. Their actuaries have this in their modeling, and if you are not insured, you are flagged for getting a physical.

  • Ross Williams

    Yglesias needs to focus on health care, not insurance, if he wants a solid argument. If we look at actual health care, there is a large gain from health care vs the alternative of no care.

    We have a natural experiment to test the life expectancy for those who forgo medical services. JAMA 1989 has an article by Simpson studying the longevity of presumed Christian Scientists vs. a similar cohort. He in fact finds a statistically significant difference in longevity, something like 4 years, iirc. Of course, these people may have in fact used medical services when they really needed them, so the effect could be much larger.

    If there are people out there without access to health care then yes, we can see an impact. Of course, the amount of care needed to reach relative parity may be small. Medicaid or subsidies for the very poor seem to be a decent policy, if we can keep the subsidies low. Of course, that last part is the problem.

    Keeping the issue of health services separate from health care is important. It is this conflation that muddles the arguments and facts comming from Yglesias and others

    Sorry for the long comment, not trying to hijack.

    Article link here:http://jama.ama-assn.org/cgi/content/abstract/262/12/1657

  • David J. Balan

    It seems to me that the relevant “theory” (which may or may not be what Matt had in mind) is that there are diminishing returns to medicine. If health insurance is going to do anyone any good, it should be the people who are on the margin between having it and not having it, and who therefore consume the least health services (relative to their needs). And since by revealed preference people who are nowhere near this margin seem to think that health insurance has positive benefits, that would suggest that the benefit for the marginal people is substantial. This seems like a valid use of the word theory.

  • Floccina

    Another interesting point is that if the treatment restores health the typical person in the USA could amortize a $300,000 set of medical bills. Keep in mind that there is very little evidence that health insurance saves money buy encouraging earlier treatment. Insurance does increase overhead so significantly more than half or people with insurance will loose by having it.

    I have insurance even though my job does not provide it. I keep the policy to avoid a big hit on my net worth and because they negotiate prices for me but I get the highest deductible that I can which is $10K per person per year. So I do see value in insurance. I have paid some big medical bills in the past. My wife was treated for breast cancer and we paid the $10K on $60K bill. She had another problem that was not covered by insurance and I paid $30K for that.

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  • Lo Statuz

    Does the “showing that you care” theory make testable

    If I understand it correctly, suppose A is making a medical
    decision for an ally B. A will prefer a publicly visible
    treatment to an invisible treatment, even if A believes the
    invisible treatment is more effective. Is that something an
    experimental psychologist can design an experiment around?

  • tom

    I’d like to know how the world would be different if people paid for their own health care and, as a result, many purchased cheap high-deductible/catastrophic policies (i.e., policies that only covered medical expenses that exceed $10k in a year).

    I’d guess that we would have

    less skiing and cycling

    fewer kids and grown-ups playing contact sports or sports that stress the joints (football, soccer, basketball)

    more people buying Volvos

    fewer osteopaths and physical therapy providers

    far fewer people on anti-depressants (or the prices for them falling a huge amount).

    I don’t know if we’d have a breakdown of the provider networks that the big insurers have now. Insurers would still demand that costs be reasonable when deciding whether to pay claims above deductibles, and they’d need some way to be comfortable that a doctor and his charges were reasonable.

    But I wonder how much we would change our approach to the risks that insured people take and the minor treatments that people undergo as a matter of course today. My own guess was that joint-type surgery (knees, etc..) would worry me if I had high-deductible coverage most since it would be expensive but might largely fall under caps.

  • Terry

    Re: “1. If people buy something, they expect positive net value from doing so. If they do not buy something, they expect negative net value from buying.”

    I think insurance is an “irregular” product in the sense that consumers typically don’t really expect “positive net value” from buying it. (Is there an existing term to represent this concept – analagous perhaps to the concept of an “inferior good”?)

    Consumers buy insurance with the expectation of RELATIVE net value: consumers are willing to accept a modest negative net value (the cost of the insurance premium) as a hedge against the greater negative net value of an uninsured risk loss.