Since single payer isn’t on the table I don’t find that a very useful exercise. That is, I’m not convinced it is worth debating the relative size of administrative costs in U.S. vs. Canada. M.S. pulls a quote from Henry Aaron’s paper that would seem to be consistent with this notion.

The most important question is what these differences should tell policy makers. I believe the answer is, “Not much.”…The U.S. health care administration, weird though it may be, exists for fundamental reasons, including a pervasive popular distrust of centralized authority, a federalist governmental structure, insistence on individual choice (even when, as it appears to me, choice sometimes yields no demonstrable benefit), the continuing and unabated power of large economic interests, and the virtual impossibility (during normal times in a democracy whose Constitution potentiates the power of dissenting minorities) of radically restructuring the nation’s largest industry — an industry as big as the entire economy of France.

I agree with Aaron here, though M.S. finds it a “strange thing to say” particularly in light of the fact that a significant transformation of the health care system has nearly come to fruition (and may do so next week). But let’s be clear, the reforms that may pass next week are peculiarly American. They are not a step toward a Canada-style single payer system and are the product of (and will reinforce) some of the forces Aaron cites. Substantial though it will be, health reform will not be a radical “restructuring of the nation’s largest industry.”

More generally, this is a perfect example of why I’m usually skeptical of cross-country comparisons or extrapolation of the results of a study on one set of countries in service of predictions about another outside the sample. There are often far too many uncontrolled differences for such comparisons to be meaningful. Perhaps there are some narrow instances where a strong case can be made that such international comparisons and extrapolations are sensible, but I don’t think health care is one of them. The U.S. is quite a different animal.

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(Terms of use.)

Regular readers will recall my many posts on correlation and causation.

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Relevant Literature

• Himmelstein, Campbell, and Woolhandler, New England Journal of Medicine, 2003.
• Danzon, Health Affairs, 1992.
• Aaron, New England Journal of Medicine, 2003.
• Casalino, et al., Health Affairs, 2009.
• Sakowski, et al., Health Affairs, 2009.

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If M.S. is reading the literature correctly (and if that literature is itself correct), then provider profit and administrative costs are higher than those of the insurance industry. M.S. quotes the Physicians for a National Health Program (PNHP),

The estimate that total administrative costs consume 31% of U.S. health spending is from research by Drs. David Himmelstein and Steffie Woolhandler and published in the New England Journal of Medicine in 2003. The figure would undoubtedly be higher today. Insurance overhead accounts for a minority of the overhead. Much more occurs in physicians’ offices, hospitals, and nursing homes—driven by our current fragmented payment system.

Sensibly, M.S. is looking for confirmation of PNHP’s assessment of administrative costs in the health care system and its allocation to insurers and providers. He hasn’t been able to find anything, and he isn’t sure he buys the 31% figure or the notion that most of it can be attributed to providers.

And there are a lot of grounds on which you might argue that the Himmelstein-Woolhandler figure of 31% administrative costs is exaggerated. You might critique their decision to allocate one-third of doctors’ office rent as an administrative cost. Are American doctors’ offices commensurately larger than Canadian ones? Are physicians’ self-reports of time spent on administrative tasks accurate? But the curious thing is, I’ve hunted around for critiques of the Himmelstein-Woolhandler numbers, and I can’t seem to find any. I also can’t seem to find any alternative studies that also tried to measure all of the administration costs incurred by providers, to get a sense of how much the fractured private insurance system really costs.

Note there are two issues here. One is the size of U.S. providers’ administrative costs. The other is that size relative to that of a single payer or national health care system (e.g. Canada’s). At the moment I’m more interested in the former than the latter. We’re not going to a Canada-style system anytime soon. But perhaps other more politically feasible reforms could reduce provider overhead. How big is that overhead and what are its components?

In fact M.S. contacted me before publishing his/her post looking for some other evidence, papers, or reports on this topic. I’m not aware of any. But maybe you are. If so, please let me know.

Later: A reader suggests that the 1992 Health Affairs paper by Danzon serves as a response to Himmelstein and Woolhandler. Clearly it isn’t a direct response to their 2003 paper. But it does cite earlier work by Himmelstein and Woolhandler that may be similar or use similar methodology and assumptions (I’m speculating). I gave the Danzon paper a quick skim (so take the following is my initial impression and not necessarily my final opinion). It seems to me that it suggests that U.S. provider overhead is greater than insurer overhead. So, while it may differ from Himmelstein and Woolhandler on some points, it might also corroborate what M.S. was seeking to confirm.

And later still: Another reader suggests taking a look at the response article by Henry Aaron in the same NEJM issue as the Himmelstein and Woolhandler paper cited above.

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And then there’s the world of domain ranking, of which Google’s PageRank is perhaps the best known and widely used since it informs every Google search. The Alexa rank was unknown to me until I noticed that some lists of blogs and sites are based on it. (There are many other types of ranks: Compete, mozRank, Technorati, and no doubt others).

With each type of rank there are websites and blogs that offer advice on how to improve your site’s score. In general I’m skeptical such techniques work, or was. Then, for fun, I tried some very simple approaches suggested on Dosh Dosh to boost this site’s Alexa rank, and they worked. Here’s what I did:

1. On all four computers I use, I installed the SearchStatus Firefox plug-in, an Alexa toolbar for Firefox (*).
2. I asked my family and a few friends to do the same, though I am only aware that two other individuals did so.
3. I placed an Alexa rank meter widget on my site (scroll down and see it at the bottom of the middle column).
4. I wrote this post.

That’s it. And in four month’s time this site’s Alexa rank improved by an order of magnitude. (Because it includes the same link as the Alexa rank meter widget, this post may have helped too, but I published it after the rank improvement just described had already occurred. For the same reason, item 4 can’t explain the rank improvement to date either.)

I roughly know why these techniques work. Alexa uses data sent by their toolbars and from users who click on the meter widget to estimate the proportion of all toolbar users and meter widget clickers that go to one’s site. So, by increasing toolbar users who visit this site (mostly just me and a few family members and friends) and thanks to the (likely very few) individuals clicking on the meter on my site, I am influencing Alexa’s statistics.

The fourth item in the list above also improves Alexa rank to the extent it draws other Alexa toolbar users to one’s site. The theory is that many Alexa toolbar users are hunting for ways to improve their own site’s statistics so they will visit sites with a post that screams: “How to Improve Your Alexa Rank” or “Alexa Rank Boosting.” Now, that’s not why I wrote this post, but I know that there may be Alexa-rank improving consequences, which will be fun to watch. (Like I said, sometimes I find even the useless somewhat interesting.)

What I find most interesting and surprising about all this is that the basis for Alexa ranking is so stupid. Clearly until today (with item 4) I have not changed traffic patterns to my site one bit via these techniques. Yet my site’s ranking dramatically improved. This is gaming, pure and simple, and shows what a joke the Alexa rank is. I’m not sure why anybody believes it is of value. It is a bit like fiat currency. It is of value because people think it is. That it is so easily manipulated is, frankly, embarrassing. Knowing this I mentally devalue Alexa ranks. I think they’re worthless except for the value others place on them.

Still, it seems to matter for some purposes so there is no harm in obtaining a better rank. And, clearly, it is not so hard to do just that.

(*) I’ve read that some Alexa toolbars send more than just the standard URL visitation and browser data to Alexa. Some blogs say that some toolbars send Alexa the data one types into online forms. That’s a bit frightening. But it seems the Firefox SearchStatus toolbar doesn’t do that.

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The first addresses the question of whether the fact that individuals switch health plans results in lower use of preventative services. Since provision of preventative services is a current investment for a future return, high turnover offers an opportunity for an insurer to benefit from the investments of others and to dodge the consequences of its own under-investment.

The second paper below documents the variation in value of a quality adjusted life year (QALY) across countries. Since figures are not reported in the same currency they are hard to compare. But the authors also estimated the discount rate of QALY value across countries. The QALY discount rate in Japan is almost twice that in the U.S., for example.

Many preventive healthcare procedures are widely recognized as cost-effective but have relatively low utilization rates in the US. Because preventive care is a present-period investment with a future-period expected financial return, enrollee turnover among private insurers lowers the expected return of this investment. In this paper, I present a simple theoretical model to illustrate the suboptimal provision of preventive healthcare that results from insurers ‘free riding’ off of the provision from others. I also provide an empirical test of this hypothesis using data from the Community Tracking Study’s Household Survey. I use lagged market-level measures of employment-induced insurer turnover to identify variation in insurers’ expectations and test for the effect of turnover on several different measures of medical utilization. As expected, I find that turnover has a significantly negative effect on the utilization of preventive services and has no effect on the utilization of acute services used as a control.

Takeru Shiroiwa, et al., International survey on willingness-to-pay (WTP) for one additional QALY gained: what is the threshold of cost effectiveness?

Although the threshold of cost effectiveness of medical interventions is thought to be £20 000-£30 000 in the UK, and $50 000-$100 000 in the US, it is well known that these values are unjustified, due to lack of explicit scientific evidence. We measured willingness-to-pay (WTP) for one additional quality-adjusted life-year gained to determine the threshold of the incremental cost-effectiveness ratio. Our study used the Internet to compare WTP for the additional year of survival in a perfect status of health in Japan, the Republic of Korea (ROK), Taiwan, Australia, the UK, and the US. The research utilized a double-bound dichotomous choice, and analysis by the nonparametric Turnbull method. WTP values were JPY 5 million (Japan), KWN 68 million (ROK), NT$ 2.1 million (Taiwan), £23 000 (UK), AU$ 64 000 (Australia), and US$ 62 000 (US). The discount rates of outcome were estimated at 6.8% (Japan), 3.7% (ROK), 1.6% (Taiwan), 2.8% (UK), 1.9% (Australia), and 3.2% (US). Based on the current study, we suggest new classification of cost-effectiveness plane and methodology for decision making.

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[E]mployees with certain conditions — asthma, congestive heart failure, diabetes, depression, heart disease, chronic bronchitis or emphysema — would get prescription drugs and visits with physicians free or at greatly reduced rates. High blood pressure, another common condition, would qualify for low-cost care if it was part of an overall diagnosis of heart disease.

Conversely, they’d pay much more if they have a treatment or test from a list of about 20 broad categories, including knee or hip replacement, cardiac bypass surgery, artery-opening stents, hysterectomies, high-tech-imaging exams or emergency room visits.

Appleby goes on to report that value-based design is not without controversy. In a world with heterogeneous responses to treatments there is no way that one set of financial incentives will seem fair to all policyholders, or to all clinicians. This is an unavoidable consequence to cost control via value-based design.

On the other hand, it is imaginable that some of those faced with relatively higher cost sharing due to their mix of use ultimately benefit in absolute terms from an overall reduction in health care costs. That is, relative to the counter-factual world with cost sharing incentives that are insensitive to efficacy and cost offsets, value-based design may benefit more people than just those with preferred conditions.

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You were wrong.

You left out some things that turned out to be important. So, I’m writing to set the record straight. These are the true essential facts about kids and parenting.

Fact 1: Everything Is Chicken. It is well known that all flavors of meat are variants of chicken. Before having kids I thought this wisdom was cultural. Wrong. It’s genetic.  Kids who can barely talk already know it.

My younger child loves eating fish and has since she could eat. At restaurants she asks for fish by name. She calls it “fish.” We order her fish. When it comes we call it “fish” too and give her a lump of fish to eat. Upon finishing her portion of fish she always says, “Want more chicken.” Same for beef, pork, or any other meat.

Apparently the class of food that seems like chicken is broader than the flesh of dead animals. True story: one morning at breakfast the little one (age 2) asked her older sister (age 5), “What is that? Chicken?” Her sister explained that no, it is a strawberry. The little one says,  “Strawberry? That must be yummy chicken for you!”

Fact 2: Childhood Is a Series of Mental Disorders. Kids will drive you crazy. It is easy for them. They’re already crazy. But they are a special form of crazy that is a different kind of bonkers every few months. They ricochet from bipolar to passive aggressive to agraphobic to ADD to OCD and back again. They’re like little in-home productions of the DSM. I didn’t know it was a screenplay.

Fact 3: A Pound of Food Has Three Pounds of Crumbs. Yes, kids are nuts. But even more than that, they are nuts with crumbs. Nobody tells you about the crumbs. In an apparent violation of the laws of physics, every meal generates enough crumbs for three more meals. Actually, some meals have, stunningly, even higher crumb yields, in particular those involving: rice, bread, any baked good, or grated cheese. I don’t even know why I make myself a plate of food. I could easily sustain myself on my kids’ crumbs.

Fact 4: Disposable Diapers Don’t Perform Well in the Washing Machine. This, by far, is the most important parenting advice you’ll ever receive: don’t let disposable diapers get in the washing machine. The only thing worse than a disposable diaper in the wash is two disposable diapers in the wash. This I know from first hand experience. It isn’t the poop or pee that makes it so bad. That’s got nothing to do with it. It’s the goo inside the diapers.

Diapers are designed to absorb liquid, a lot of it, but not tens of gallons of water. When a diaper reaches its carrying capacity it does what anybody who has had too much to drink would do: explode. Upon detonation, all the nice liquid absorbing goo inside the diaper begins to slosh around the washing machine.

Do you know what that goo does in the wash? It turns into goo pellets. Goo pellets are paradoxically both a solid spherical pellet and a glob of gooey jell. Like the dual wave/particle nature of light, diaper goo pellets have perplexed physicists for centuries. The only things physicists have figured out about goo pellets is that they (a) absorb a lot of pee and (b) adhere readily to the inside walls of a washing machine.

If the goo pellets would make up their mind and just be sold pellet or liquid goo one could clean them up easily. But no. They hang playfully in a state of superposition: impossible to wipe or wash away, but very easy to smear around. Believe me, a diaper (or two) in the wash makes for a bad day. Should you be so unfortunate to drop three or more into a load do yourself a favor and just throw away the machine.

These four facts are all a person needs to be prepared for parenting. Since the species has, apparently, existed for millennia it may be that our ancestors once knew some of these pearls of wisdom. Somehow in our modern age they have been lost. Having now brought them to your attention, I leave it to you to share them with your friends who fancy themselves as future parents. They won’t believe these tidbits are important, but they’ll thank you later.

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[T]he simple answer to the hawks … is that it is not feasible to tackle costs without tackling coverage. Our delivery system could not withstand the stress. Two thirds of hospitals lose money on Medicare now. Virtually all lose money because of Medicaid underpayment. To impose serious delivery reform and incentive realignment while leaving hospitals on the hook for the mounting billions of dollars in uncompensated care would bankrupt many and strain most to the breaking point. With expanded coverage, we’ll get absolutely essential hospital cooperation. Without expanded coverage, hospitals will have to protect themselves from change, and their local communities will want them to.

… Within a decade, we will face draconian health care price controls, massive benefit cuts in Medicare, Medicaid, and the private sector, or both. This credible threat of cost slashing without coverage expansion is one reason the powerful provider lobbies, such as the American Hospital Association, the American Medical Association, and PhRMA (Pharmaceutical Research and Manufacturers of America), have embraced comprehensive reform.

Backing up to the first sentence in that quote, in what sense is it “not feasible” to implement more severe cost controls without first expanding coverage? The answer includes some dire predictions about hospital bankruptcies. But the real answer, as Nichols makes plain at the end of the quote, is political. The powerful interest groups Nichols lists would resist cost control without coverage expansion. Like it or not, those interest groups must be on board for anything substantial in health policy to occur. That’s just reality.

Hence, proposed health reform is heavy on coverage expansion and light on cost control in the near term. If there is to be any real cost control it will come later, and gradually. To think it can be done first is fantasy.

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[ Begin mini-rant: It is a sad fact that surveys are expensive and hard to do well, in part due to the rational temptation by many to ignore them. Because I understand the value of data for social science and the challenges of collection of voluntary data, I also support the use of administratively collected (non-survey) data for research. Administrative data don't suffer from the response rate issues that surveys do, though they have other weaknesses. And use of administrative data does raise privacy concerns (as does survey data use). My threshold for privacy concerns is much higher than most. In general, I'd like to see greater ability for researchers to access, combine, and analyze data so long as they are de-identified whenever possible and there are strong yet reasonable penalties (with enforcement) for misuse and sound, workable remedies for those who might be harmed by such. As a country we have a long way to go in terms of sensible collection and use of data for research and penalties/remedies in the case of misuse. End mini-rant. ]

Anyway, my favorite part of completing the ACS questionnaire was thinking about the questions pertaining to the mental and physical abilities of my five year old daughter. The questions caused me to ponder:

• Do her emotions pose difficulties for concentrating, remembering, and reasoning? (It would be a rare five year old for whom emotions did not play precisely that role.)
• Is she really independent in dressing or bathing if her parents need to occasionally remind her to do them, help her into and out of a shirt or boot, and rinse the shampoo from her hair?

From my work with survey data, I do know what the ACS designer’s were getting at with their mental and physical functioning questions, so I answered “no” to questions about my daughter’s difficulty in these areas. But still, this illustrates one of many ways in which survey response errors arise. It just isn’t crystal clear what is meant by some questions.

The questions on income also reveal issues. There is no suggestion that one should pull out a pay stub, a bill, or tax return. I answered the questions from memory in very round figures which I am sure are close but not exactly right. No doubt many people have absolutely no idea what they pay per year for water and sewer services, or how much interest and dividend income they receive annually. These data have got to be very imprecise and, worse, possibly biased.

I’ve been aware for years about errors and bias in survey responses. I’ve just never been on the other side of the data. This was my first time completing the ACS or anything like it. I know it isn’t easy to design good surveys that don’t cost a fortune to implement. Now I can see quite clearly that you get what you pay for.

(Oh, and two more things. Could the designers of the ACS please send a larger return envelope? I had a hell of a time getting the survey into the return envelope without ripping it. Finally, it wasn’t necessary to send two surveys. I know why they did–to increase response rates–but I had returned my first several weeks before receiving the second. Now I wonder, did they get the first? No, I’m not filling it out twice!)

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