Fundamental health care reform for the United States

 
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Fundamental health care reform for the United States
Fu n d a m e n t a l h e a l t h c a r e r e f o r m
for the United States

President Obama’s health care reforms are the most controversial that the United States has ever seen. Proponents
and opponents portray them in radically different terms. Here, Jonathan Gruber explains why statistics from
­previous experience are of only partial use; and on page 124, Jasjeet Singh Sekhon looks at the uncertainties and
 false inferences that have been ignored by commentators on both sides.

On March 23rd, 2010, President Obama signed          “bend the cost curve” and save the United States      typically can access fairly priced insurance that
into law the most significant piece of social pol-   from fiscal ruin.                                     they view favourably. Moreover, employer-spon-
icy legislation in almost fifty years. The Patient       Will it work as the reformers hope, providing     sored insurance in the US is tax-free, a tax break
Protection and Affordable Care Act (PPACA) will      health cover to many of those at present without      worth $250 billion per year that encourages the
ultimately provide health insurance coverage to      it, and limiting soaring health costs? Reviewing      provision of generous coverage.
32 million of the nation’s uninsured, and improve    the history of how this significant reform arose,         But those who do not have access to employ-
the security of insurance for millions more who      we can compare it to the experience of Massa-         er-sponsored insurance face a harsh non-group
are one accident away from losing coverage. It       chusetts and their pioneering reform experiment       insurance market where in most states insur-
does so in a fiscally responsible fashion by actu-   in 2006. It offers a guide, but only a partial        ers can discriminate against those who are ill
ally reducing the deficit by over $100 billion in    guide, to the likely implications for the nation      by denying them insurance, excluding their
the first decade and over $1 trillion in the next.   going forward.                                        pre-existing coverage, by charging them prices
And it includes a host of innovative ideas for                                                             which are a large multiple of the prices charged
cost control that offer our best chance to date to                                                         the healthy. Thus, even among those 10–15 mil-
                                                     Background: the problems and the policy               lion Americans who rely on this market, there
                                                     divide                                                is no security that their insurance will actually
                                                                                                           be there should they get sick. Imagine the out-
                                                     Experts throughout the political spectrum have        rage there would be over a life insurance policy
                                                     for years derided the failings of the US health       that could be revoked upon death; yet this is
                                                     care system. These failings are in two primary        the situation facing many individuals who try to
                                                     areas. The first is the enormous disparities in       purchase insurance on their own.
                                                     health care access and outcomes. For high-in-             The second major problem is the rapidly ris-
                                                     come insured families, the US health care system      ing costs of health care. US health care spending
                                                     is among the best in the world. But for lower-        has more than tripled as a share of the economy
                                                     income and uninsured families, limited access is      since 1950, and now stands at 17.1% of GDP.
                                                     associated with particularly poor outcomes. For       This is twice the GDP share of countries such as
                                                     example, the white infant mortality rate in the       the United Kingdom or Japan which have compa-
                                                     US is 0.7%, which compares very favourably with       rable health outcomes among insured citizens.
                                                     other developed nations. But the black infant             For the past several decades, efforts to ad-
                                                     mortality rate is twice as high at 1.4%, which is     dress these problems have been stuck between
                                                     somewhat higher than the infant mortality rate        extremes on the left and the right. The solution
                                                     in Barbados (1.1%). The share of non-elderly          favoured by those on the left is a single payer
                                                     US residents without health insurance stands at       insurance system such as that in Canada. Such
                                                     18%, which is particularly embarrassing when          a system would guarantee universal coverage
                                                     compared to the universal insurance coverage          of insurance, and holds out the potential for
                                                     provided by all other industrialised nations.         much more fundamental cost control through
                                                         These disparities largely reflect a bifurcation   national budgeting of health care costs. How-
                                                     in our health insurance system. The primary           ever, this solution is clearly politically unfea-
                                                     source of insurance coverage for the non-elderly      sible. First of all, the majority of Americans,
                                                     comes through employers, and those who have           particularly those working for large firms with
© iStockphoto.com/Leah-Anne Thompson                 access to employer-sponsored health insurance         choice of plans, are quite content with their

  122                         september2010                                                                                        © 2010 The Royal Statistical Society
Fundamental health care reform for the United States
private health insurance. It would be very dif-           Of course, it is neither morally correct nor po-   did Massachusetts in taking on the issue of cost
ficult to convince them to give up that insur-       litically feasible to mandate that all individuals      control and “bending the curve”. As with the
ance so that a minority of Americans can get         obtain insurance without helping to offset the          Massachusetts reform, the legislation includes an
covered. Second, the private health insurance        costs for the lowest-income families. A typical         exchange through which insurance will be com-
industry in the United States is a massive en-       family health insurance policy in Massachusetts         petitively sold, hopefully increasing transparency
tity with more than $800 billion in claims paid      costs more than $13 000 per year, which is more         and price competition in non-group insurance.
annually. It is impossible to conceive of a day      than 50% of the family income of those at the           But the federal legislation includes four additional
when that industry could be legislated out of        poverty line. As a result, the third leg of the         tools to control health care cost growth:
business.                                            stool was extensive subsidies for those below
    The solution favoured by those on the right      three times the poverty line (about $66,000 per            • A “Cadillac tax” on the most expensive
is to expand access to private health insurance,     year in income for a family of four).                        health insurance plans which scales back
for example by giving individuals tax credits to          The results of this reform have been impres-            the tax break to employer-provided insur-
purchase health insurance from private vendors.      sive. By any metric, this mandate has been a                 ance and should induce individuals in those
The problem with this approach is that it does       success:                                                     expensive plans to seek more cost-effective
nothing to address the underlying failure in non-                                                                 care.
group insurance markets which leads to individu-        • In the very first year of this new regula-            • An independent board which will endeav-
als being unable to obtain fair insurance that            tion, 98% of tax filers complied with the               our to depoliticise the process of rate set-
they can keep even if they get sick. Providing            mandate.                                                ting for Medicare, public insurance for the
individuals with more resources, but not giving         • Within a year of the mandate, the rate of               elderly.
them a place to take those resources to buy fairly        uninsured in the state had fallen by 60%.             • Research into the cost effectiveness of
priced insurance, is simply throwing good money         • The share of the population with a main-                alternative treatments for medical illness.
after bad. Moreover, such an approach cannot              stream source of medical care rose signifi-           • Dozens of pilots for new ways to organise
provide anywhere near universal coverage.                 cantly.                                                 the reimbursement of medical care.
                                                        • About half of the increase in coverage was
                                                          due to a rise in private coverage. Rather              Second, the experience of Massachusetts may
The Massachusetts solution                                than “crowd out” private insurance cov-            not tell us much about the key political issue
                                                          erage, this programme appears to have              going forward: the popularity, or lack thereof, of
Into this chasm came an innovative solution               “crowded in” private coverage, with em-            the individual mandate. There are a number of
proposed by Mitt Romney, the Republican Gover-            ployer insurance rising faster in Massachu-        reasons to think that the mandate might be more
nor of Massachusetts. Romney’s approach might             setts than in the rest of the US.                  popular in Massachusetts. First, it is binding on
be labelled “incremental universalism”: getting         • The average cost of a non-group insurance          a much smaller share of the population than in
to universal coverage by filling the gaps in the          policy, which nationally rose by 14% from          the US as a whole. Second, this law was passed
existing system, rather than ripping up the sys-          2006 to 2009, fell by 40% in Massachu-             with virtually universal support; there were only
tem and starting again. As originally crafted by          setts.                                             two dissenting votes in both houses of the leg-
Romney and ultimately passed by the Massachu-           • The health reform remains highly popular,          islature. As a result, public officials were able
setts legislature in April 2006, the Massachusetts        with 74% of the public supporting reform           to engage in a massive social marketing cam-
reform relied on a “three-legged stool” to sup-           and only 15% opposed.                              paign with no significant resources invested in
port reform. The first leg was insurance market         • The costs of reform have been roughly              “counter-advertising”. This social marketing may
reforms, disallowing insurers from denying cover-         equal to what was projected by analysts            have been central to both the success and ac-
age, charging based on health status, or exclud-          when the law was passed.                           ceptance of the mandate. In other states the ac-
ing pre-existing conditions. This leg was actually                                                           ceptance of the mandate is likely to be much less
put in place over a decade ago, in 1996, and the                                                             widespread. If this requirement is not explained
effects on the non-group market of these reforms     From Massachusetts to the nation                        clearly and marketed appropriately it may not
mimicked what happened in other states which                                                                 be widely accepted by the public. Moreover, the
undertook these reforms: the market collapsed        The Massachusetts reform provided a template            various opponents of the legislation may provide
and prices rose enormously, so that by 2006 Mas-     for federal reform. The PPACA follows the same          counter-advertising which will impede the suc-
sachusetts had a tiny non-group market and the       “three-legged stool” approach. By the full imple-       cess of the mandate.
highest non-group premiums in the US.                mentation date of 2014, insurers will no longer             Finally, unlike in Massachusetts, new revenues
    Romney’s insight was to add two other legs       be able to discriminate on the basis of health or       were required to fund the national reform. These
to make the stool stand up. The first was an in-     exclude pre-existing conditions. A mandate will         revenues are raised partly through reductions in
dividual mandate, a requirement that individuals     be in place for all individuals, with individuals       Medicare spending and partly through new taxes,
purchase insurance coverage if it was deemed         paying a penalty of up to 2.5% of income if they        primarily on high-income families.
affordable (which is defined as the costs of in-     are uninsured, so long as they have available to
surance relative to income being below a given       them insurance which costs less than 8% of their
level). By mandating universal coverage, Romney      income. And there will be an expansion of public        The effects of fundamental reform
brought healthy individuals into the insurance       insurance and large tax credits which subsidise
pool, significantly lowering costs. The plan also    insurance for all families below four times the         There is an enormous amount of uncertainty in-
involved the establishment of a “connector”          poverty line. New “exchanges” in each state will        volved in predicting the impacts of reform that
which allowed for a transparent marketplace in       replicate the Massachusetts “connector” in pro-         is this transformative. Our best projections are
which individuals could effectively shop across      moting insurance market competition.                    based on results from the non-partisan Congres-
their non-group insurance options, promoting             While the Massachusetts reform was a template       sional Budget Office (CBO) which was in charge
competition and price reduction in this market       for the national reform, the PPACA is a much more       of evaluating this legislation. The CBO estimates
(interested parties can see this model in action     ambitious piece of legislation. First and foremost,     that the bill will, by 2019, reduce the number of
at www.mahealthconnector.org).                       the federal legislation goes much further than          uninsured by about 60%, from 55 million pro-

                                                                                                                     september2010                      123
Fundamental health care reform for the United States
jected uninsured to 23 million. These individuals    that the cuts and revenue increases are rising         legislation. Thus, while the bill is not guaranteed
remain uninsured for two reasons. First, the leg-    faster over time than are the new spending ob-         to lower cost growth, it incorporates virtually all
islation explicitly excludes undocumented aliens     ligations. These are very imprecise projections,       of the leading-edge thinking about the types of
from coverage, and this group comprises about        however, particularly after the first decade           reforms that might have that effect. I strongly
one-sixth of the uninsured. Second, many indi-           The bigger question is what the effects will be    suspect that this is the first round of at least a
viduals will either be exempt from the mandate       on health care costs in the US in the long run. To     two-round process, and that the next round will
on affordability grounds, or will choose to pay      address this question, it is critical to distinguish   take on cost control more seriously.
the penalties rather than sign up for insurance.     between effects on the level of health care spend-         To summarise, the success of any legislative
    This bill is projected to have little impact     ing and its growth. The US is projected to spend       effort such as this one depends on what one
on group insurance premiums. The larger effects      an unsustainable 38% of GDP on health care by          views as a politically realistic goal. While the
will be on premiums in the non-group market.         2075. Suppose that reform were able to cut the         bill falls short of universal coverage, covering
The CBO predicted that, for a fixed non-group        costs of insurance by 7% through the various           the majority of the uninsured and reducing the
policy, premiums would fall by about 10% after       interventions proposed in the legislation. Given       deficit in the process is well beyond what most
implementation. Overall, the CBO predicted that      that health care costs rise by 7% per year on aver-    reformers thought was possible. The scorecard
non-group premiums would rise, but this reflects     age, this simply means that we will spend 38% of       for cost control is more mixed, although in fact
the fact that individuals will be choosing more      GDP on health in 2076, rather than 2075! Clearly,      there is no consensus on what else should have
generous non-group products after reform. Of         the key to the long-run viability of this system is    been done to fundamentally control costs. The
course these findings ignore the substantial         to control the rate of health care cost growth.        long-run viability of the US health care system
heterogeneity that will result from this change.         So will this legislation achieve that goal? This   will depend on whether this is the first step to-
Older and sicker individuals will clearly see a      is unclear. There is no compelling evidence that       wards fundamental reform or the last.
large reduction in their non-group premiums,         any of the cost controls in this legislation will
while younger and healthier individuals may see      “bend the cost curve”. At the same time, health
an increase in the short term.                       policy experts cannot really say for sure how we       Jonathan Gruber is a Professor of Economics at MIT
                                                                                                            and the Director of the NBER Program on Health Care.
    The bill is projected to reduce the US federal   should best go about slowing cost growth. In
                                                                                                            He has written widely on health economics and other
government deficit over the next decade by more      such an environment of uncertainty, the best           public policy topics. He helped develop and is on the
than $100 billion, and by more than $1 trillion in   response is to try a number of approaches and          implementing board for Massachusetts health care re-
the decade after that. These estimates reflect the   to see what works. This “spaghetti approach”           form. During the development of the PPACA he was a
fact that the cuts in Medicare and tax increases     (throwing a bunch of things against the wall to        paid technical consultant to the Federal Department
exceed the spending on the newly insured, and        see what sticks) is exactly what is pursued in this    of Health and Human Services.

Statistics, false inferences and
unacknowledged uncertainties
The problems, says Jasjeet Singh Sekhon, are not the false claims but the true facts that may be interpreted in
many ways, and that do not imply what people think they do.

It is strikingly difficult to resolve basic ques-    and managing the US health care system is the          Texas has an uninsured rate of about 25%. These
tions about the health care system in the United     equivalent of managing and regulating all of           stark differences made, and continue to make,
States. This means that is it also difficult to      the goods and services produced in the UK, the         the politics – and the evaluation – of national
evaluate the Obama administration’s health care      world’s sixth largest economy.                         reform difficult.
reforms. The issues of inference are complex, far        Not only is the US health care system mas-             The debate on national health care reform
more complex than usually portrayed in media         sive, it is also exceedingly diverse. For example,     was heated. Many false and outlandish claims
coverage, Congressional testimony and govern-        the health care system functions very differently      were made – for example, that “Obama care”
ment reports.                                        in a state like Massachusetts than it does in a        would lead to “death panels”. These have been
    Professor Gruber has reviewed the background     state like Texas. Massachusetts is known for its       amply discussed and discredited by the media.
to the legislation. Before delving into the chal-    academic medical centres, biomedical research,         But it has been common for other claims to make
lenges of inference, it is important to highlight    and high-quality health care, and it is a state        the media rounds that may not imply what it is
the size and complexity of the task of reform-       in which only about 9% of the population was           generally believed they do. To put it another
ing the US health care system. The health care       uninsured before it enacted its own health care        way, the most problematic ideas in the health
system takes up 17.1% of the GDP of the United       reform in 2006. Since this reform, universal           care debate are not the obviously false ones, but
States, which is equivalent to the total GDP of      coverage has almost been achieved, with 97%            arguments based on true facts that do not imply
the United Kingdom. By this metric, regulating       of all residents covered as of 20091. In contrast,     what people think they do. One of these is the

  124                         september2010
often cited statistic that although the US spends
the most on health care, its health outcomes
are poor relative to those of other industrialised
countries. Another is that there are easy policy
interventions that can reduce both costs and
improve health because states and hospitals
that spend more on health care get nothing in
return.

Low life expectancy in the United States:
Is the health care system culpable?

One of the most frequently reported facts in
the health care debate was that the US spends
a greater proportion of its GDP on health care
than any other country, while life expectancy in
the US is relatively low. These statistics led many
commentators to conclude that the US health
care system delivers not only expensive but also
substandard care. Some went on to argue that
since the extra money must be going somewhere,
it is going to excessive health insurance and            © iStockphoto.com/webking
drug company profits.
    The first problem with these claims is that          of additional years: 19.0 in the US and 18.9 in       The rate for blacks is a national tragedy. Even
only a small portion of health care expenditures         the UK. But from 65 onwards the gap in favour         more disturbingly, the infant mortality rate of
can be accounted for by health insurance and             of the US grows. Seventy-five-year-olds are ex-       middle-class blacks with medical insurance is also
drug company profits. Health insurance profits           pected to live half a year longer in the US than in   significantly higher than that for whites. But the
account for only 1% of total health care expen-          the UK, which is remarkable given that at birth       question at hand is whether the health care sys-
ditures and drug company profits only account            Americans are expected to live 1.4 years less         tem is to blame for these differences, or whether
for 1.3%2. Excluding both health insurance and           than individuals in the UK.                           they stem from other social phenomena.
drug company profits, the US spends 16.7% of                 The temptation is to give this table and these        For example, some argue that social inequality
its GDP on health care. The absolute expendi-            figures a simplistic interpretation. The most         is linked with higher rates of disease and lower
tures are large, but the relative expenditures are       commonly reported interpretation is that the US       life expectancy, and the US has more income in-
small, and these profits cannot account for why          health care system provides worse care than the       equality than other industrialised countries. The
the US spends more on health care than other             UK system because of lower life expectancy at         evidence based on human studies is only sugges-
countries.                                               birth. Alternatively, one could argue that medi-      tive, but the effect has been observed in experi-
    By way of comparison, the UK spends                  cal care in the UK for the elderly is poorer than     ments with social animals such as primates6–8.
about 8% of its GDP on health care and has a             it is in the US.                                      This may be a reason to pay attention to the
life expectancy of 79.7 years. In contrast, the              Such interpretations should be resisted. It is    distribution of income in the US, but one should
US spends 17.1% of its GDP and has a life ex-            impossible to make any valid inferences about         not judge the health care system by outcomes
pectancy of 78.3 years. Table 1 presents the life        the comparative performances of health care           caused by other social structures.
expectancy of different age cohorts in both the          systems from such a table. There are simply too           The act of evaluating a health care system
US and the UK. Note that life expectancy in the          many factors that differ too profoundly between       by making comparisons of the sort presented
UK exceeds that of the US for every age cohort           the two countries: the behaviour of people, their     in Table 1 reached its logical limit in the World
until age 65. Sixty-five-year-olds in both coun-         demographics, and social phenomena such as            Health Organization’s (WHO) report on national
tries can expect to live about the same number           income inequality and poverty rates.                  health systems. This 2000 report received exten-
                                                             For example, the United States had the high-      sive media coverage, especially the result that in
                                                         est per capita cigarette consumption rate in the      a performance ranking of the health care systems
Table 1: Life expectancy by age cohort, US and UK.
                                                         developed world3. One study estimated that if         of 191 nations, the US ranked 37th.
The table shows that a US citizen aged 70 can expect
a further 12.1 years of life; a similar UK citizen can   deaths attributable to smoking were eliminated,           The WHO study actually presents two dif-
expect to live only another 11.6 years                   the ranking of US male life expectancy at age         ferent rankings. The first is based on ‘overall
                                                         50 among 20 OECD countries would improve              attainment’(OA) and the second on ‘overall
Age                US                    UK              from 14th to 9th, while US women would move           performance’ (OP). Both rankings use the same
                                                         from 18th to 7th4. And as is frequently reported,     data, but the OP ranking is adjusted to reflect
 0                78.3                  79.7             obesity rates are unusually high in the United        a country’s performance relative to how well
20                59.2                  60.3             States5.                                              it could theoretically have performed. The US
40                40.3                  41.0                 The demographics of the US are different from     ranked 15th in the OA rankings but 37th in the
                                                         those of other countries. And health outcomes         OP ranking.
60                22.8                  22.9
                                                         vary greatly across demographic groups. The               The WHO ranking consists of five different
65                19.0                  18.9             African-American infant mortality rate is 13.7        types of measures: health level (disability-ad-
70                15.4                  15.1             per 1000 live births, while the rate for whites in    justed life expectancy); responsiveness (meas-
75                12.1                  11.6             the US is 5.7. The infant mortality rate for whites   ures a variety of health care system features,
                                                         compares favourably with other OECD countries.        including speed of service, protection of privacy,

                                                                                                                       september2010                    125
choice of doctors, and quality of amenities); the     internationally comparable data for the actual       health care system appears to be operating bet-
distribution of responsiveness across population      incidence of diseases. Disease incidence is not      ter than those of peer nations.
groups; and financial fairness. In the report, the    the same as disease detection. Disease detection
US ranks first in the responsiveness measure.         is a combination of both disease incidence and
What drags the US down to 15th is the relatively      the mechanics of identification. A country with      Easy cost savings?
low life expectancy and unequal distribution of       a good health care detection system may appear
access and costs. And what makes the ranking          to have a higher disease incidence, when in fact     Some claim that easy savings can be made
go from 15th to 37th is the high cost of the US       it does not – it just detects the disease more       through increased efficiencies. An often debated
system.                                               efficiently. Moreover, incidence could be less the   issue is whether Medicare, the universal govern-
    These details were rarely reported. The de-       result of the health care system and more the        ment health care program for the elderly, is more
tails matter because preferences for equality are     result of other social factors.                      efficient than private health insurance providers.
embodied in the WHO study. But it is well docu-           Because of these problems, Preston and Ho        This would appear to be a simple question, but
mented that American voters prefer a greater          evaluate health care systems by measuring their      it is not. One of many complications is that there
degree of inequality than European voters9. And       ability to diagnose diseases in a timely fashion     is a cross-subsidy from private insurance patients
the WHO report concedes that the responsiveness       and to then treat them. These two factors are        to Medicare patients. Hospitals lose money on
of the US medical system (for those who have ac-      core elements of what we expect a health care        Medicare patients, and they recover that loss
cess) is second to none. It is a political, ethical   system to do, and they are less prone to be influ-   from patients with private insurance. The losses
and philosophical question how responsiveness         enced by social factors. The authors investigate     can be large. For example, the Mayo Clinic, one
should be traded off against equality. It is not a    the comparative mortality trends for prostate        of America’s premier hospitals which is held up
scientific question.                                  cancer and breast cancer, in part because effec-     by the Obama administration as an exemplar of
    We are left with a conundrum. The US has          tive methods of screening for these diseases have    excellent and cost-effective care, reports that it
poor health outcomes but arguably the world’s         been developed recently so their rates of adop-      lost $840 million on Medicare patients in 2009.
most responsive health care system for those          tion can be measured. They find that the new              The Obama administration often refers to
with access to it. Are there ways of evaluating       diagnostic methods have been deployed earlier        studies by researchers at Dartmouth College
the US health care system that are independent        and more widely in the US than in the industrial-    that show the correlation between health care
of social factors?                                    ised countries they used for comparison11. And       expenditures and patient health outcomes to
    Researchers have begun to make progress. For      since effective methods are being used to treat      be zero or even negative12,13. The Dartmouth
example, Preston and Ho10 propose a promising         these diseases at higher rates than elsewhere,       researchers examined how much hospitals across
approach. They focus on how particular diseases       the US has had a significantly faster decline in     the country billed Medicare for patients with a
are identified and then treated across countries.     mortality from these diseases than comparison        chronic illness who were in their last six months
This is a difficult task because there are no         countries. For these diseases at least, the US       to two years of life. Although the studies show

© iStockphoto.com/Dr. Heinz Linke

  126                          september2010
that health care costs vary greatly across the             Doyle’s design relies on the assumption that       not acknowledging the uncertainty, and dismissing
country, the studies cannot show why. For exam-        these medical events are unforeseen, so people         opponents as irrational if the evidence does not
ple, by their measures, the Mayo Clinic is shown       do not select their vacation destination because       convince them, poisons the political debate no
to be cheap while the University of California         of the expected quality of medical care. He com-       less than making charges of “death panels”.
at Los Angeles (UCLA) Medical Center is shown          pares the health outcomes for destinations that
to be expensive. But why? Many things differ           are demand substitutes for tourists but that have      References
between the two medical centres. For example,          different levels of health expenditures. His result           1. Weissman, J. S. and Bigby, J. A. (2009)
the main Mayo Clinic is located in Rochester,          may be explained away if visitors in better health     Massachusetts health care reform – near-universal
Minnesota, while UCLA is located in a major            choose to visit higher-spending areas. However,        coverage at what cost? New England Journal of
metropolis with almost a hundred times the             the expectation would be the reverse: sicker peo-      Medicine, 361, 2012–2015.
population of Rochester. Costs are clearly going       ple would visit areas with higher spending and                2. Reinhardt, U. E. (2007) The pharmaceutical
to be different.                                       more teaching hospitals.                               sector in health care. In Pharmaceutical Innovation:
    Many papers have recently been written chal-           There is some political wishful thinking at        Incentives, Competition, and Cost-Benefit Analysis in
                                                                                                              International Perspective (eds F. A. Sloan and C. R.
lenging the Dartmouth studies. Some note, for          work. If the Dartmouth group’s findings are
                                                                                                              Hsieh). New York: Cambridge University Press.
example, that only measuring Medicare expen-           taken at face value, then there may be an easy,               3. Forey, B., Hamling, J., Lee, P. and Wald,
ditures may be misleading, especially given the        relatively painless, way to control medical costs      N. (eds) (2002) International Smoking Statistics:
cross-subsidy from private insurance patients.         – hospitals can be made to reduce expenditures         A Collection of Historical Data from 30 Economically
Others try to make hospitals around the US com-        without impacting patient outcomes. There is           Developed Countries.Oxford: Oxford University Press.
parable by adjusting for cost of living and other      also statistical wishful thinking at work. The                4. Preston, S., Glei, D. and Wilmoth, J.
observable factors. The core problem, however, is      hope is that with some adjustment of observed          (2009) Contribution of smoking to international
that it is unclear whether one can observe the         factors, we can estimate the effect of being           differences in life expectancy. In Divergent Trends
factors necessary to make different patient groups     treated at one hospital versus another or one          in Life Expectancy (eds E. Crimmins and S. Preston).
comparable through statistical adjustment. If we       state versus another. I wish we understood social      Washington, DC: National Research Council.
                                                                                                                     5. Organisation for Economic Co-operation
could successfully adjust for confounders, why         systems well enough to do that reliably.
                                                                                                              and Development (2008) OECD Health Data 2008: How
would we run randomised controlled experiments                                                                Does the United States Compare? Paris: OECD.
for new drugs? Why not use for drug approval                                                                         6. Deaton, A. (2003) Health, inequality,
whatever statistical methods we think can make         Conclusion                                             and economic development. Journal of Economic
both the patient groups and other factors be-                                                                 Literature, 41, 113–158.
tween the Mayo Clinic and UCLA comparable?             Nothing here should be taken to mean that I op-               7. Brunner, E. and Marmot, M. (1999)
    The problem is that much of social life is         pose or support the health care reform that was        Social organization, stress, and health. In Social
about selection. For example, smarter students         passed. The issue is that analysts and politicians,    Determinants of Health (eds M. Marmot and R. G.
go to better schools, so it is difficult to estimate   both in public and in private, have generally been     Wilkinson). Oxford: Oxford University Press.
the effect on life outcomes of going to Harvard        optimistic about their ability to make judgements             8. Sapolsky, R. (1993) Endocrinology
                                                                                                              alfresco: psychoendocrine studies of wild baboons.
rather than Boston University, just across the         about various parts of the health care system.
                                                                                                              Recent Progress in Hormone Research, 48, 437–468.
Charles river from Harvard. Likewise, at the level         With a system as complicated as health care               9. Alesina, A., DiTella, R. and MacCulloch, R.
of individual patients, higher medical spending        there will always be many unintended conse-            (2004) Inequality and happiness: are Europeans and
is associated with higher mortality rates, even        quences to any reform. For example, one argu-          Americans different? Journal of Public Economics, 88,
after attempting to control for observable char-       ment in defence of the Massachusetts health            2009–2042.
acteristics such as age and comorbidity levels.        care reform passed in 2006 was that taxpayers                 10. Preston, S. and Ho, J. (2009) Low life
Regional or hospital level estimates aggregate         and the insured were already paying for the un-        expectancy in the United States: Is the health care
the choices made at the individual level.              insured because they would visit hospitals when        system at fault? NBER Working Paper.
    The Mayo Clinic serves a significantly more        they became sick. These uninsured patients were               11. The authors compare the performance of
white, residentially stable, and middle-class          using Emergency Departments (EDs) for simple           the US with a group of 15 economically developed
                                                                                                              OECD countries: Australia, Austria, Canada, Finland,
patient group than UCLA. It is unclear how to          care instead of visiting clinics or family physi-
                                                                                                              France, Germany, Greece, Italy, Japan, the Netherlands,
adjust for that. For example, if a patient is less     cians, and ED visits are more expensive. How-          Norway, Spain, Sweden, Switzerland, and the UK.
likely to return for follow-up care, might not a       ever, in the aftermath of the 2006 Massachusetts              12. (2006) Dartmouth Atlas of Health Care. The
doctor perform more tests and procedures now?          health reform, visits to EDs have gone up and          Care of Patients with Severe Chronic Illness. Hanover,
    To try to overcome these difficult issues of       ED wait times have increased15. The problem is         NH: Center for the Evaluative Clinical Sciences,
selection, Joseph Doyle at MIT employs an inno-        that health insurance was extended, so patients        Dartmouth Medical School.
vative research design14. He looks at medical out-     are more likely to seek medical care. But these               13. Fisher, E. S., Goodman, D. C., Skinner,
comes of patients who are exposed to different         patients were not provided with physicians or al-      J. S. and Wennberg, J. E. (2008) Dartmouth Atlas of
health care systems not designed for them. He          ternative clinics to use. And given the shortage       Health Care. Tracking the Care of Patients with Severe
compares patients who are on vacation far from         of internists in the US, it is unclear how to fix      Chronic Illness. Lebanon, NH: The Dartmouth Institute
                                                                                                              for Health Policy and Clinical Practice. 2008.
home when they have a health emergency. He             this problem. This is not to argue that extending
                                                                                                                     14. Doyle, J. (2010) Returns to local-area
shows that out-of-state tourists in higher spend-      health care was not the proper policy. The point       healthcare spending: using health shocks to patients
ing parts of Florida who experience unexpected         is that it is difficult to predict the consequences    far from home. Working Paper.
health shocks – such as heart attacks, strokes,        of such policy interventions, and it would be                 15. American College of Emergency Physicians.
and hip fractures – have significantly lower           helpful if analysts and politicians acknowledged       http://www.acep.org/MeetingInfo.
mortality rates than tourists in lower-spending        that uncertainty.                                      aspx?id=46812 (accessed June 10th, 2010).
areas. High-spending areas provide greater in-             To put it bluntly: evidence that would be insuf-
tensive care unit services, a higher likelihood of     ficient to approve a single drug is being marshalled   Jasjeet S. Sekhon is Associate Professor of Political
treatment provided in a teaching hospital, more        to change the entire medical system. This, in and      Science and Director of the Center for Causal Infer-
surgical procedures, and higher staff-to-patient       of itself, is not an argument for doing nothing: de-   ence and Program Evaluation at the University of Cali-
ratios.                                                cisions must be made even under uncertainty. But       fornia, Berkeley.

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