[ 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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Those are two true statements. There wasn’t room in the story for the other related things I have said or written, but you can find them elsewhere. In particular, it is still not at all clear that reducing insurer market power without parallel efforts on the provider side will help consumers. Nevertheless, allowing additional insurer market concentration via mergers is, in general, probably not a good idea provided health care providers do not themselves consolidate further.

The much larger and more important point, however, is that other elements of health reform are vastly more important to consumer welfare than the over-sized concern about insurer market concentration. We’re being distracted by that issue for a reason: it plays well and is helping sell the overall reform package by boosting Obama’s and Democrat’s popularity.

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Background reading: The recent Kaiser Health News piece by me and Ian.

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In a sea of internet-based information, how does one judge or learn (or teach) how to judge what is worth paying attention to or what is notable? This is a very tough question. There are myriad signals one can use to inform one’s basis for relevance and importance. Among them are association with or endorsement by institutions or individuals of prominence and credibility.

That’s essentially attribute substitution at work. (Steve and I have a paper centered on the behavioral economics version of that concept.) But what is a “prominent” and “credible” institution or individual? And what constitutes “endorsement”? On the first question, we each have our own list. Many people count Fox News among the “prominent” and “credible.” Others reject it as such.

So we’re clearly interpreting the source of signals differently. And we can’t judge the information based on the signals of its source until we judge the source itself. Where does that judgment come from? That’s a thorny question I’ll side step at the moment. I’ll just note that we obviously cannot discount our heritage, upbringing, communities, and self-interest in addressing it.

Suppose we just assert that we have some sensible way of arriving at a list of prominent, credible institutions and people. We then, more or less, trust in some fashion (but verify when warranted, whatever that means) what those institutions and individuals say and endorse. The real question at the heart of a current debate on Wikipedia I’m observing is, what constitutes endorsement? In what fashion must an individual or institution of prominence and credibility mention something in order for that that something to be deemed “notable”?

To some, that something must itself be the explicit subject of discussion in order to confer notability. It isn’t sufficient that the thing be merely used (e.g. cited or quoted), it must itself be described and discussed by the prominent and credible source. That’s a perfectly reasonable definition of notability. But it does mean that one’s work can amass a great volume of references and be put to tremendous use without it becoming notable. It isn’t notable until someone or some institution of import says, “You know that thing we use/cite/quote a lot? Now I’m going to finally explicitly tell you how useful and good it is. …”

Alternatively, under the definition of notability just described, a thing can be notable without ever being put to use. In practice I think this is rare. Hence, the notable are nearly always useful, but the useful not always notable. That narrows the domain of Wikipedia-worthy entries, which is no doubt viewed by many as one of the attractive features of the foregoing notion of notability.

In my own life, I certainly rely on that definition of notability. There are a great many things to which I would not give a moment’s notice were it not for the explicit endorsement by an individual or institution I trust. Should I pay attention to the work of Dr. XYZ? If several colleagues I trust tell me she’s written a superb paper I will go read that paper and be predisposed to view it favorably. On the other hand, I notice when the same individual is quoted or cited a lot by others I trust. In time, I begin to trust that quoted/cited individual even if she is not or her work is not explicitly described and endorsed.

Thus, for me notability is attained in two ways. One way, the explicit endorsement, is the quickest route. One good word from a trusted source and the transfer of legitimacy has begun (though it is not inevitable or irreversible). The other way, an accretion of references, is slower. But it is also more robust if they come from a variety of sources. A dense web of citations and uses is compelling in a way that is hard to undo. Of course, coming to my own favorable opinion based on direct experience confers the most lasting impression. But is it not confounded with both my predisposition of favorability (ex ante attribute substitution) and my tendency to overvalue my own opinion which motivates the subconscious search for reinforcement (ex post confirmation bias)?

From beginning to end the process of determining the worth of a thing is infused with subjectivity and bias. In some domains science can guide thinking and clear away a substantial amount of likely hokum. But that only gets you so far. Thus, for Wikipedia, an objective definition of notability is critical. Yet for participants in Wikipedia debates on the matter there can be very little objective about it.

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In his recent NY Times opinion piece, Reich claimed that the current antitrust exemption for insurers “is why a handful of insurers have become so dominant in their markets.” As we wrote in our KHN column, this claim is extremely dubious. Moreover, it is far more likely that premium increases are largely due to factors other than insurer concentration.

As we’ve noted previously, the exemption (under the McCarran Ferguson Act) is very narrow, and does not apply to mergers, acquisitions, and most other kinds of conduct by which companies get big.  We’ve also noted that there are some types of conduct by which insurers could defend and expand their market share that arguably do fall within the scope of the exemption, but they are sufficiently modest and theoretical that is unlikely they bear much responsibility for the current state of market concentration.

We’ve also made the larger point that even if repeal of the exemption or other forms of stepped up antitrust enforcement were to have a material impact on insurer market power, there is little reason to believe it would produce tangible benefits for consumers absent parallel efforts against providers. A recent paper by Berenson, Ginsburg, and Kemper in Health Affairs documents the upward pressure on costs driven by provider organization and concentration. Based on hundreds of interviews with representatives of hospitals, physician organizations, health plans, and other stakeholders in six California health care markets, the authors conclude that

[t]he shift in who holds the upper hand in negotiating payments—once held by health insurance plans but now resting with health care providers—has had a major impact on California premium trends.

… [P]roviders are developing increased leverage through single-specialty group formation and merger-and-acquisition strategies that do not involve integration. Nevertheless, given the push in Congress and elsewhere to restructure health care delivery with accountable care organizations, it is instructive that whatever their merits in improving quality and efficiency, California-style integrated care systems currently produce higher prices that undermine cost containment.

Other work by health economists, reviewed on this blog, indicates that the high degree of market power held by insurers acts as a counterweight to that held by hospitals. Diluting the insurance market may have small downward effects on insurer profit and administrative efficiency, but it could have large upward effects on prices of health care services. Those higher prices would be passed on to consumers.

Therefore, concentration among providers, and in particular hospitals, must also be addressed. Unfortunately, permitting additional provider coordination and integration via accountable care organizations (ACOs), as envisioned in current health reform legislation, may not help matters. The bundling of payments ACOs would facilitate may save money, but only if the greater market power of additional provider integration does not act to offset those savings.

Taming health care costs will be hard. The job is made harder when we’re looking in the wrong place. Insurers may not deserve the special treatment they’ve received from the federal antitrust exemption. But they also do not deserve the level of blame they’ve received for health care costs.

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Therefore, today may be the last day this blog graces the pages of Wikipedia. On the other hand, I think there is a good case that this blog is at least as notable as others listed there.

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Is Stupak trying to kill health reform?  He says he isn’t and he is continuing to negotiate with House leaders.  Stupak’s statements closely parallel those coming from the US Conference of Catholic Bishops, which strongly supports the larger reform but insists on tighter abortion restrictions.  The question for Stupak and the bishops is: Are you willing to risk losing your preferred abortion language to ensure passage of health reform?  If so, the abortion issue could be split off into a third bill that would get a vote on its own.  Such a deal would probably guarantee success for health reform.  So far, Stupak and the bishops have not embraced this approach.  Instead, they are demanding that their language be included in the sidecar bill.  The bishops would then work to get 60 votes in the Senate to overrule the Parliamentarian and allow the abortion provision to pass via reconciliation.  I don’t see how pro-choice Democrats and anti-reform Republicans could be convinced to vote with the bishops, so this strategy doesn’t appear to lead anywhere.

With victory on abortion unattainable for the bishops, the question remains: Do they want a bill?  If so, face-saving votes can be arranged that demonstrate their commitment without killing the bill.  If not, they will kill the bill.  My personal guess is that they want a bill, but we probably won’t know for sure for about two weeks.

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That’s the question posed and answered in a recent NBER paper by Dafny, Ho, and Varela. The authors exploit a proprietary dataset on employer offers and employee enrollment between 1998 and 2006 for over 800 large employers with over 10 million employees, collectively. They imagine a world in which employees receive a voucher equal to their employer’s current contribution toward health insurance and then use the voucher to purchase any plan in an exchange-like setting. Their statistical model of consumer choice permits the calculation of the net gain in consumer surplus resulting from increased choice (the extra amount consumers would be willing to pay for the additional choice).

We find choice is worth quite a bit for most individuals: in our most conservative hypothetical scenario the median employee would enjoy a surplus gain of roughly 20% of combined employer and employee premium contributions. In year 2000 dollars, this gain is approximately $2,025 for a family of four. Combining these figures with data on employer subsidies, we find the median employee would be willing to forego 27 percent of her employer subsidy simply for the right to use what remains toward a plan of her choosing. (© 2010 by Leemore Dafny, Katherine Ho, and Mauricio Varela.)

There are plenty of reasons to support exchanges and a transition away from employer based insurance. In addition to the other distortions of the labor market due to an employer based system (job lock, for one), Dafny, Ho, and Varela point to a substantial loss of economic welfare.

Their paper provides one other tremendous service: a more complete literature review on insurer loading fees (the proportion of premiums that support non-medical costs) than any I’ve seen (pages 28-31). They cite literature that reports loading fees that range from 7% for large insurers to 30% for the non-group market and an overall average of 12.8%. They write that the Lewin Group has predicted a loading fee of 10.7% for an exchange for which all workers are eligible to participate. Note that these loading fees (LFs) can be converted to loss ratios (LRs) via LR = 1/(1+LF). The implied range of loss ratios is consistent with what I wrote in an earlier post (phew!).

* Small businesses will be permitted to offer exchange based plans as their employer plan. So workers in such firms will be able to enroll in exchange plans and receive the tax subsidy.

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I wrote a little about the blog anyway, just to get the entry started. But it’ll probably get spiked if nobody else contributes to it. If anyone out there wants to work on it, please do. Don’t hesitate to add this blog to the list of blogs page too.

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It is well known that concentration in the health insurance industry is to blame for rapidly rising premiums. Well known, but wrong. Taking political advantage of this common misconception, last week the House passed a bill to repeal insurers’ antitrust exemption. But even if that bill becomes law it won’t do much good, and politicians’ distraction could actually harm consumers. It’s far more likely that premium increases are largely due to other factors.

Those who claim that the antitrust exemption is the main reason a few insurers have substantial market power don’t understand the narrowness of that exemption’s scope. The law at issue, the McCarran-Ferguson Act, shields most aspects of “the business of insurance” from federal (but not state) antitrust oversight. This means that only those insurer activities dealing directly with providing insurance–think underwriting risk, setting rates, defining benefits, and the like–are not ordinarily subject to federal antitrust scrutiny.

There are exempt insurance practices that, at least in theory and under certain conditions, could help insurers defend and expand their market share against competitors. But the exemption simply does not shield the most straightforward kinds of conduct that make companies big.

Activities not connected with the basic risk-spreading function of insurance are deemed “the business of insurers” rather than “the business of insurance” under the law, and do not enjoy any federal antitrust exemption. Thus mergers and acquisitions among health insurers are as aggressively (or passively) scrutinized as those in any other industry by federal antitrust enforcers.

Health care reform advocates concerned about the high degree of concentration in today’s insurance market cite the more than 400 mergers among health plans allowed over the last 13 years. But repeal of the McCarran-Ferguson antitrust exemption would have literally no effect on this trend. Even if other forms of stepped-up antitrust enforcement or other means of encouraging competition were to have a material impact on insurer market power, there is little reason to believe it would produce tangible benefits for consumers absent parallel efforts targeting the provider side of the market.

While there is some evidence that insurers’ market concentration plays a role in premium increases, that role is small. For example, a National Bureau of Economic Research paper [1] found that only 2.1 percent of employer-sponsored health insurance premium increases between 1998 and 2006 were due to insurer concentration.

It is far more plausible that a high proportion of premium increases are due to a combination of concentration in the provider market and adverse selection, especially in the nongroup market. After all, most premium dollars are not kept by insurers and go toward payment of health care services [2]. Insurers take a little off the top, but not enough to be blamed for anything like the perennially large rate increases.

A recent Health Affairs paper [3] describes the upward pressure on costs driven by provider organization and concentration. Based on hundreds of interviews with representatives of hospitals, physician organizations, health plans and other stakeholders in six California health care markets, the authors conclude that “[t]he shift in who holds the upper hand in negotiating payments—once held by health insurance plans but now resting with health care providers—has had a major impact on California premium trends.” And we all know what those trends have looked like lately.

Perhaps counter-intuitively, large insurers can be bulwarks against high costs driven by provider consolidation. Two papers [4, 5] by health economists in the International Journal of Health Care Finance and Economics indicate that the high degree of market power held by insurers acts as a counterweight to that held by hospitals. Therefore, diluting the insurance market may have small downward effects on insurer profit and administrative costs, but it could have large upward effects on prices of health care services. Those higher prices would be passed on to consumers.

That’s why those who understand our health care system know that costs will not be tamed by a focus on the insurance market alone. The Congressional Budget Office has scored the likely effect on premiums of health insurer antitrust repeal as insignificant. Therefore, concentration among providers, and in particular hospitals, must also be addressed.

Don’t get us wrong–we don’t think that the current antitrust exemption is good law or policy. But cracking down on insurer market power without doing the same against providers may well have the opposite of its intended effect. Taming health care costs will be hard. Attacking insurers is, by comparison, very easy, as well as popular. But in this case, what is popular will not be particularly effective.

References

[1] L Dafny, M Duggan, and S Ramanarayanan (2009). Paying a premium on your premium? Consolidation in the U.S. health insurance industry. NBER Working Paper 15434.

[2] L Dafny, K Ho, and M Varela. (2010). Let them have choice: Gains from shifting away from employer-sponsored health insurance and toward an individual exchange. NBER Working Paper 15687.

[3] R Berenson, P Ginsburg, and N Kemper. (2010). Unchecked provider clout in California foreshadows challenges to health reform. Health Affairs Web Exclusive, February 25.

[4] R Feldman and D Wholey. (2001). Do HMOs have monopsony power? International Journal of Health Care Finance and Economics 1(1).

[5] L Bates and R Santerre. (2008). Do health insurers possess monopsony power in the hospital services industry? International Journal of Health Care Finance and Economics 8(1).

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