Health – Page 4 – Donald Marron

Should Children Get One or Two H1N1 Flu Shots?

The World Health Organization (WHO) and the United States government are having a fascinating debate about the number of H1N1 flu vaccinations that children under age 10 should receive. Both agree that two shots are better than one. The vaccine is scarce, however, so public health officials have to make hard choices about how to prioritize its use.

As NPR reported a few days ago, the WHO favors giving a single dose to each child because of the vaccine shortage:

“The priority is to give…one dose rather than vaccinate half the number of children with two doses,” says Dr. Marie-Paule Kieny, director of WHO’s Initiative for Vaccine Research.

The National Institute of Allergies and Infectious Diseases (NIAID), however, favors giving two doses to each child:

“One of the dangers in jumping ahead and saying you want to stretch out the supply by giving a single dose to these young kids,” [NIAID Director Dr. Anthony] Fauci says, “is that you’ll be under-protecting them.” If that happened, he says, we wouldn’t be saving a dose for each vaccinated child. We’d be wasting a dose.

Intrigued by this difference in opinions, I took a quick look at some of the newest vaccination data that the NIAID reported last week. Researchers examined the immune response of 583 children who received two doses of vaccine and found the following:

To use these data in developing vaccination strategies it is helpful (as I repeatedly tell my students) to consider the marginal benefits and costs associated with each shot:

Continue reading “Should Children Get One or Two H1N1 Flu Shots?”

Yes, the House Health Bill Costs More than $1.2 Trillion

In a series of posts last week, I noted that the coverage provisions in the House health bill would cost more than $1 trillion over the next ten years, notably higher than the $894 billion figure that was circulated when the bill was first released. In addition, I pointed out that the bill includes other spending increases that aren’t involved in expanding coverage; when you factor those in, I estimated that the real cost of the bill would be almost $1.3 trillion.

I am not alone in this conclusion. According to David Espo of the Associated Press:

The health care bill headed for a vote in the House this week costs $1.2 trillion or more over a decade, according to numerous Democratic officials and figures contained in an analysis by congressional budget experts, far higher than the $900 billion cited by President Barack Obama as a price tag for his reform plan.

While the Congressional Budget Office has put the cost of expanding coverage in the legislation at roughly $1 trillion, Democrats added billions more on higher spending for public health, a reinsurance program to hold down retiree health costs, payments for preventive services and more.

Many of the additions are designed to improve benefits or ease access to coverage in government programs. The officials who provided overall cost estimates did so on condition of anonymity, saying they were not authorized to discuss them.

My own calculation came in at $1.27 trillion, which strikes me as “almost $1.3 trillion” rather than “$1.2 trillion or more”, but that’s nit-picking.

The key point is that there’s a consensus, at least behind the scenes, that the bill would cost more than $1.2 trillion over the next ten years.

The Costs of the Health Bills: Another Look

The Congressional Budget Office released a very helpful letter today that clarifies some of its thinking about the budget impacts of the health bills now pending in Congress. Most importantly, CBO offers a new metric for evaluating the health bills: how they affect the federal government’s budgetary commitment to health care. That’s a very useful metric because it reflects not only government spending on health care, but also the various tax subsidies (most notably for employer-sponsored health insurance) that the government provides.

CBO concludes that the House bill would increase the federal commitment to health care by seven times as much as would the Senate Finance Committee bill ($598 billion vs. $85 billion over ten years):

CBO Cost Measures

The top line in the table reflects the gross costs of the coverage expansions in each bill. As I noted yesterday, the correct figure for the House bill is $1.055 trillion. There was some confusion about this at first, but most commentators now appear to be referencing this figure (see this nice NYT piece discussing the confusion).

There are two additions I would make to this table:

First, as I discussed yesterday and a few weeks ago, I think policy makers should unpack the second line item, changes in net spending for Medicare, Medicaid, and other programs. That line includes not only spending reductions but also important spending increases. Based on the individual line items in the two cost estimates, I estimate that those spending expansions are about $75 billion in the Senate Finance bill and about $217 billion in the House bill. As a result, I think the gross costs of the two bills are around $904 billion and $1.272 trillion, respectively. (But see the caveat below.)

Second, the House bill includes the CLASS Act, whose budget accounting is misleading. As I discussed several months ago, the CLASS Act would create an insurance program for long-term care. It’s intended to be budget-neutral in the long-run, but premiums start faster and more robustly than do benefit payments. As a result, this budget-neutral proposal narrows the deficit by $72 billion over the next ten years, but then increases the deficit by a comparable amount in subsequent years. A better accounting would net this out, leaving the House bill with a deficit reduction of $32 billion over the next ten years, rather than $104 billion. (Speaker Pelosi and her team deserve credit for being very transparent on this point; the side-by-side they distributed comparing the bill to an earlier one highlights this issue in the very first entry, and some proponents of the bill have indeed referred to it as saving about $30 billion over ten years.)

Caveat: As I’ve previously noted, it’s difficult to get a precise estimate of the additional gross health spending in the bills because the plethora of provisions interact with one another. As a result, CBO reports some major cost impacts–including both deficit reducers and deficit increasers–as interactions that aren’t attributed to individual line items. In principle, those interactions could cause my $75 billion and $217 billion figures to be higher or lower. CBO briefly addresses this issue in today’s letter, noting: “The reductions in net spending for those programs could themselves be divided into provisions that would increase spending (and thus the federal budgetary commitment to health care) and provisions that would decrease spending (and thus that commitment). However, even some individual provisions of the proposal have elements that raise costs and elements that lower costs. Tabulating all of the aspects of the proposal that would, in isolation, increase federal outlays would be complicated and would require somewhat arbitrary judgments about how to allocate interactions among different elements of individual provisions and interactions among provisions.” I certainly agree. However, I also believe that it is important for everyone involved in this debate to remember that these other provisions are in there. And so, in the absence of more precise figures, I think the $75 billion and $217 billion figures are the best we can do.

The House Health Bill Costs Almost $1.3 Trillion

As I’ve noted in a series of posts, there is often great confusion about the cost of the health bill being considered by Congress.

Yesterday, for example, many commentators were saying that the coverage expansions in the new House health bill would cost $894 billion over ten years, even though the actual cost is $1.055 trillion (according, as always, to the estimates of the Congressional Budget Office).

A second problem is confusion between (a) the cost of expanding coverage and (b) the overall cost of the bills. Expanding coverage is the key focus of each of the major health bills, but we should always keep in mind that the bills make other changes as well. In the case of the Baucus bill, for example, I estimated that other spending initiatives added about $75 billion, bringing its total cost to slightly more than $900 billion.

I’ve made the same calculations for the House health bill, and the additional spending is even larger: about $217 billion. Among many other things, that spending would increase payment rates for primary care physicians in Medicaid and create two new funds to finance public health investments and prevention and wellness efforts. The bill would also extend a provision in the recent stimulus bill (ARRA) that increased the federal share (the FMAP) of Medicaid spending, and thus provided assistance to the states:

As noted, the House bill does not include any funding to prevent the upcoming 20%+ cut in payment rates for doctors in Medicare. The Baucus bill included a one-year fix at a cost of $11 billion, while the Senate’s efforts to pass a permanent fix without paying for it recently failed (thankfully).

P.S. Kudos to David Espo of the Associated Press for covering the cost of the House bill correctly. He wrote: “The Congressional Budget Office said the cost of additional coverage alone was slightly more [than] $1 trillion over a decade. But that omitted other items, including billions for disease prevention programs.”

Note on the numbers: The increases in other health spending programs are sprinkled throughout CBO’s analysis of the bill. I calculated the $217 billion figure by adding up all the individual line items that increased direct spending, with a couple of exceptions. First, I did not include the interaction effects that CBO lists as the end of the estimate because I was not sure how to allocate them; the interactions are large and could have a material effect on my estimate, potentially up or down. Second, there was one policy that led to both spending increases and spending decreases; since the decreases were larger, I didn’t include any of the increases in my figure. I am certainly open to other suggestions about how to add up the other spending in the bill.

Doesn’t the House Bill Fail the President’s $900 Billion Test?

This morning Speaker of the House Nancy Pelosi released the latest version of the House health bill. And this afternoon, the Congressional Budget Office (CBO) released its preliminary analysis of the budget impacts of the bill.

One of the key findings of that analysis is that the coverage expansions in the bill would cost $1.055 trillion over the next ten years. And that would seem to imply that the bill fails one of President Obama’s key litmus tests, namely that the total cost be less than $900 billion.

As best I can tell, however, you won’t find that figure or interpretation in any of the initial media coverage. Instead, everyone is reporting that CBO concluded that the bill cost $894 billion and, therefore, that it appears to meet the $900 billion test. For example:

The Wall Street Journal: “House legislation to overhaul the health-care system, unveiled Thursday, includes a compromise version of a public insurance option and carries an overall cost of $894 billion over 10 years, House aides said.”

The New York Times: “House Democrats on Thursday unveiled an $894 billion package to remake the health care system.”

The Washington Post:”The House legislation aims to provide health insurance of one form or another to 96 percent of all Americans at an expected cost of just below $900 billion over 10 years.”

Why does my interpretation differ so much from the media’s? I can see only two possibilities. Either (a) the media have been snookered by proponents of the bill or (b) I missed the memo about how the policy community decided to change how costs are measured. (If it’s (b), please let me know so I can catch up.)

The issue here is the difference between the gross and net costs of expanding coverage. As CBO summarizes it (with my emphasis added):

The estimate includes a projected net cost of $894 billion over 10 years for the proposed expansions in insurance coverage. That net cost itself reflects a gross total of $1,055 billion in subsidies provided through the exchanges (and related spending), increased net outlays for Medicaid and the Children’s Health Insurance Program (CHIP), and tax credits for small employers; those costs are partly offset by $167 billion in collections of penalties paid by individuals and employers. On balance, other effects on revenues and outlays associated with the coverage provisions add $6 billion to their total cost.

I had been under the impression that everyone was using the gross cost measure when discussing the cost of expanding coverage. And I wasn’t alone. When the Baucus bill was released earlier this month, everyone (including each of the newspapers I linked to above) referred to it by its gross price tag ($829 billion), not its net ($518 billion), and said things like the Baucus bill “would cost $829 billion over the next 10 years — well under the $900 billion President Obama had suggested.”

If the right coverage figure for the Baucus bill was $829 billion, then we ought to be focusing on the $1.055 trillion coverage cost in the House bill.

And if $829 billion is not, in fact, the right measure, when did the goalposts move?

P.S. I will follow up shortly with a second concern about the cost discussion: that there are non-coverage items in the bill that cost substantial sums. That’s why I previously argued that the Baucus bill actually cost a smidgen more than $900 billion.

Update: Both Roll Call and the AP are using the more than $1 trillion figure.

COBRA: Adverse Selection in Action

The November 2 Forbes suggests that health insurance under COBRA provides a clear example of adverse selection in action. COBRA is the law that allows workers who leave a job (either voluntarily or not) to continue participating in the health insurance they were getting from their employer. To do so, however, they have to pay the full monthly premium—both the employee and the employer portions—plus a 2% administrative fee.

That sticker shock means that many eligible individuals decide not to continue their coverage under COBRA. Not surprisingly, those people tend to be healthier than average. The folks who use COBRA, on the other hand, tend to be less healthy—and, therefore, more expensive—than average. As a result, insurance companies report that COBRA coverage is a money loser:

Citi analyst Charles Boorady says health plans lose a considerable amount of money on Cobra policies. He estimates that the loss ratio–the amount spent on care compared to the premium collected–is around 200%.

Earlier this year, the stimulus bill created a federal subsidy that pays up to 65% of COBRA premiums for laid-off workers who meet certain income limits. That boosted COBRA enrollment and, according to the article, worsened the hit on insurers. It will be interesting to see whether the insurance industry raises any objections if Congress considers extending the COBRA subsidy (eligibility currently expires on December 31, 2009).

Bonus: Here’s a question I might ask my students in the spring, when we study adverse selection: Would insurers feel differently about a 100% federal subsidy for COBRA coverage for laid-off workers?

Your Mileage May Vary

In the category of better late than never, I should highlight Lori Montgomery’s article in Monday’s Washington Post about how the Congressional Budget Office (CBO) is evaluating the health bills now working their way through the Congress.

The article focuses on Phil Ellis, a senior analyst who is helping lead CBO’s estimation efforts. Phil is an essential part of the CBO health team (indeed, one piece of advice I gave Doug Elmendorf when he took the reins at CBO was “keep Phil happy”). But I should emphasize that there are literally dozens of other folks at CBO who have been working furiously for months to help Congress understand the implications of the myriad health ideas that are under consideration. They all deserve our thanks for their efforts.

Not surprisingly, I think those efforts are essential. As the article reminds us, however, we should also keep in mind how much uncertainty there is about the ultimate impact of the health proposals. As Phil says:

“We’re always putting out these estimates: This is going to cost $1.042 trillion exactly,” he said. “But you sort of want to add, you know, ‘Your mileage may vary.’ “

That’s exactly right. The Congressional budget process demands specific estimates of how much proposed legislation will cost, so that’s what CBO produces. But reality is much more complex, and the actual costs will undoubtedly be more or less.

That uncertainty can be frustrating, but it’s unavoidable. As Nobel Laureate Nils Bohr once said, “Prediction is difficult, particularly if it’s about the future.”

Over at Capital Gains and Games, Pete Davis points out that some commentators (who may have their own agendas) use that uncertainty as a reason to criticize CBO estimates. Pete is thus concerned that the article’s sub-title (“CBO’s price tags are educated guesses, but guesses nonetheless”) may leave the wrong impression. His alternative:

“CBO’s Price Tags Are A Lot Better Than Anyone Else’s, And, Without Them, We’d Never Keep Control Over Congress’ Largess.”

More on the Medicare Doctor “Fix”

On Sunday, I expressed concern about Congress enacting a permanent Medicare doctor “fix” without paying for it. Yesterday, the Washington Post chimed in with similar concerns.

I have now written a longer version of my argument, which has been published by e21, a new think thank based in New York and Washington. My bottom line remains the same:

Thus, even as Congress struggles to enact one roughly $900 billion health bill, it also wants to hustle through a second $245 billion one. Moreover, Congressional leaders want to pass the permanent doctor fix without paying for it. All $245 billion would thus flow straight into our deficits.

For a nation running trillion-dollar deficits, such profligacy should no longer be acceptable.

When I say that e21 is new, I mean really new. e21 (short for Economic Policies for the 21st Century) opened its doors (well, its web site) yesterday. It’s mission statement is:

We aim to advance free enterprise, fiscal discipline, economic growth, and the rule of law. Drawing on the expertise of practitioners, policymakers, and academics, we will encourage a spirited debate about the way forward for democratic capitalism. And we will do so in a manner that is accessible and engaging, in a way that appeals to both experts and non-experts.

I hope to contribute additional pieces to e21 in the future.

Why You Should Oppose the Medicare Doctor “Fix”

The Senate is preparing to take up a bill to implement a permanent “fix” to the rates that Medicare pays for physicians. That bill is a budget-buster, costing almost $250 billion over the next ten years. But Congress doesn’t want to pay for it. Everyone concerned about our budget situation should oppose this latest example of Washington profligacy.

The Senate is preparing to take up a bill to implement a permanent “fix” to the rates that Medicare pays for physicians. That bill is expensive, costing almost $250 billion over the next ten years. But Congress doesn’t want to pay for it. Everyone concerned about our budget situation should oppose this latest example of Washington profligacy.

The underlying mechanics of the issue are arcane, but the fundamental political and budget issues are simple:

Under current law, the rates that Medicare pays physicians are scheduled to decline by more than 20% at the end of the year. No one, least of all the doctors, wants this to happen. So Congress is looking for a “fix”.

This problem is not new. It began in 1997, when Congress decided to limit the amount spent on physician services in Medicare. The idea was that spending above the target would be offset by reductions in physician payment rates in the future. However, Congress has repeatedly flinched from implementing those reductions. Moreover, Congress often decided to avoid near-term reductions by promising to cut payment rates even more in the future. That’s why there’s an accumulated “debt” requiring a 20+% cut in rates now.

With encouragement from the President, many Congressional leaders want to eliminate this issue once and for all by enacting a bill that would provide payment increases to doctors, rather than dramatic cuts, at a cost of $245 billion over the next ten years (and unmeasured amounts in the years beyond).

And here’s the kicker: they want to spend that money without paying for it. So all $245 billion would flow straight into our deficits. For a nation running trillion-dollar deficits, that’s unconscionable.

Proponents of this profligacy will argue that (a) it’s essential to fix physician payments once and for all and (b) doing so now is no different from the doctor fixes Congress has enacted in previous years.

Both of those arguments are wrong.

Continue reading “Why You Should Oppose the Medicare Doctor “Fix””

Talking about the Baucus Bill

I did an interview on Fox Business on Thursday to discuss CBO’s analysis of the revised Baucus health bill.

Going in, I had three basic points that I wanted to make:

First, as I discussed yesterday, CBO’s estimates indicate that the bill would cost a bit more than $900 billion over the next ten years, not the $829 billion that most commentators are using. The latter figure reflects the costs of expanding coverage, but does not include other efforts — e.g., paying more to physicians under Medicare and expanding the Medicare drug benefit — that are also included in the bill. The $75 billion difference strikes me as important in itself, but the larger issue may well be how much additional spending is in the House bill. The previous version of the House bill was often described as costing about $1 trillion over ten years, but if you include all the new spending in it, the actual figure was north of $1.5 trillion.

Second, as I noted in my discussion of the original Baucus proposal, the bill satisfies all the key budget tests, at least as it is written. The tax increases and spending reductions in the bill more than offset the costs of expanded coverage (and the other spending increases) over the next ten years and the subsequent decade. In short, the bill makes a serious effort to take budget concerns into account. On this score, it is much better than what we’ve seen from the House.

Third, there are serious questions, however, about whether the spending reductions and tax increases scheduled in the bill will actually come to pass. As we’ve seen with the doctors in Medicare, on the one hand, and the alternative minimum tax, on the other, policymakers often have a hard time allowing scheduled spending reductions or tax increases to occur. Thus, the actual budget implications of the bill may be worse than what CBO’s analysis suggests.

I haven’t watched the video, but my recollection is that I made points 1 and 3, but didn’t manage to work point 2 in.

On the lighter side, you will also see that (a) I still haven’t mastered my collar and (b) judging by my wife’s laughs, there’s an amusing moment at the end where you can tell that they are whispering in my ear: “You are still on camera.”