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Medicaid Dilemmas – Part 1

by Tom aka Rusty Rustbelt

Medicaid Dilemmas – Part 1

Medicaid is a federal/state program covering poor people, with general services for all ages and long-term care (nursing home) services for the indigent elderly.

State budgets are extremely tight, and many states are cutting reimbursements, including nursing home reimbursements.

The majority of long-term nursing home residents (as opposed to short stay rehab patients) end up being Medicaid funded.

A typical long-term resident is an 84 year widow, suffering from moderate senile dementia, having ambulation problems and problems with activities of daily living (eating, dressing, bathing), with late onset diabetes symptoms, osteoarthritis and congestive heart failure. So, grandma is not a candidate for home care or assisted living.

Many residents are in much worse health. Some receive joint services from the facility and from hospice.

Nursing homes have the toughest regulatory regimen of any health care providers, including piles and piles of mandatory paperwork by nursing and administrative staff.

So, not much room to cut (the best profit comes from selling the facility later). Now what?

In Part 2 we will discuss the possible next phase for state Medicaid budgets.

(The wife, aka the world’s greatest nurse, works part time in long-term care, and will now do more work and take a pay cut. She understands the deal, but one of these days she is going to hang up her stethoscope, a real tragedy for the elderly. Maybe she will become an investment banker – nah, too honest.)
Tom aka Rusty Rustbelt

$295 Million Would Buy A Lot of T-Shirts

Ken Houghton notes that the first thing anyone learns from Pietra Rivoli’s The Travels of a T-Shirt in the Global Economy: An Economist Examines the Markets, Power, and Politics of World Trade is how pernicious the U.S. subsidy of its cotton industry is.* Now the WTO has discovered the obvious:

American goods will face [$294.7] million in annual sanctions as a result of the United States’ failure to eliminate illegal subsidies to domestic cotton growers, the World Trade Organization ruled Monday.

The NYT attempts to spin this as a loss for the complainants:

The result was disappointing for Brazil, which has won a series of rulings against the United States over the last seven years. The Latin American country had sought to target American goods and drug patents for $2.5 billion worth of economic retaliation.

But gets to the order-of-magnitude-other-way-part a few paragraphs later:

Washington had argued that the award should not exceed $30 million.

So no one is happy, but it’s a start:

“The subsidies paid by the United States to its 25,000 cotton farmers exceed the entire gross national income of virtually every cotton-exporting country in West and Central Africa,” Mr. McGivern said. “Despite several rounds of litigation and ministerial-level negotiations, this issue remains unresolved.”

The cotton case was the first agricultural case started by a developing country in the group’s history.

The issue of generic drugs and trade is dealt with in this Health Affairs piece (of which maybe more later).

Meanwhile, those interested in a certain absurd claim previous dealt with by Susan of Texas (see here and here, for instance) and others, check out this press release from Health Affairs from last week. Good thing those countries don’t have a system that supports pharmaceutical innovation and investment better than the U.S. one.

Models for health care organizations?

Tom aka Rusty

Models for health care organizations?

In a recent post I opined the Mayo Clinic and Cleveland Clinic, both favorites of President Obama, were not models for wide application to the rest of the nation.

In response to a spirited debate (thanks Coberly) I wrote up these comments.

Starting in the 90s a common model has been the Medical Services Organization, or MSO.

(I seem to remember the MSO evolving from failed staff model HMOs.)

In the model, the hospital or integrated network buys and/or starts physician practices, manages those practices, and the physicians are employees of the MSO corporation.

Many of the MSOs were/are an attempt to provide adequate primary care medicine in an era when primary care practices are tough to manage. The MSO model allowed a central organization to hire, deploy and re-deploy physicians in accordance with the needs of the community.

Many of the early MSOs failed, for a variety of reasons, but often bad management. Hospital executives thought “I can manage a hospital, therefore I can manage physician groups,” and that was very misguided thinking. Some still use that line of thinking, producing poor results.


The MSO model can be used in both large cities and small communities.

The model allows (or forces) better coordination between physicians and hospitals.

The model can be combined with an insurance product, or not.

The model allows better coordinated negotiations with private insurers.

Patients can often keep their doc, just under a different nameplate.

There is a potential in integrate information systems.

Hospitals often do a poor job of management.

Hospitals often botch physician contracting.

Most hospitals lose money on MSOs, theoretically making up the difference by capturing ancillaries and through management efficiencies.

Many physicians are lousy employees. Physicians rarely trust hospital executives.

Physician motivation and work ethics change, structuring physician contracts is very difficult.

Specialists, by and large, have not bought into the MSO model, which remains a province of primary care (often including internal medicine and ob-gyn).

Health care reform will drive providers to start new MSOs and to expand current MSOs. There will be a honeymoon period, but the marriages may not live happily ever after.

House Tri-Committee Health Care Bill w/CBO Prelim Analysis

by Bruce Webb

House Education and Labor:: America’s Affordable Health Choices Act all links from the Committee web page.


Bill Text (1.7 MB PDF)

CBO-Preliminary Analysis: Tri-Committee Health Care Bill

Compare to the tables scoring the Senate HELP Bill Kennedy-Dodd Bill with CBO Scoring

House Tri-Committee: Ten year addition to budget $1.082 trillion. Total coverage non-elderly: 94%. Coverage for legal non-elderly: 97%
Senate HELP: Ten year addition to deficit: $597 billion. Total coverage non-elderly 88%. Coverage for legal non-elderly 90%.

Over to you.

The Egalitarian U.S. Health Care System?

by Tom Bozzo

Tyler Cowen writes:

Since old, high-bank-account white males have lots of social status and power, [believers in egalitarianism] cannot bring themselves to regard those males as holding very poor overall endowments.

Cowen claims that the poor old rich white guys’ supposedly “poor overall endowments” arise from the impairment of their human capital at the more-or-less imminent end of life. There might be half of an argument here if human capital were the only component of individual wealth. Instead, we have Shorter [*] Tyler Cowen: The rich actually aren’t so rich if you don’t count their money. Whether and to what extent marrying Neutron Jack increased Mrs. Suzy Welch’s human capital as distinct from social and financial capital is left as an exercise for the reader.

So it’s pretty easy to construct an exception to Cowen’s claim that

The “poorest” people are not those with low incomes but rather those with low human capital endowments.”

Take a suitably dimwitted heir to a sufficiently large fortune and I will show you someone not only a lot richer than a comparably bright person who picked his or her parents badly, but in fact just about everyone else.

Now Cowen actually is right to point out that the U.S. health care system provides plenty of care to seniors at the end of life despite what I will agree are often modest endowments of wealth (including, but not necessarily limited to, human capital). The inference that this makes the U.S. health care system more egalitarian than European systems, however, is highly questionable to say the least. First of all, health care for the elderly is the most European part of the U.S. system: more-or-less universal, more-or-less socialized medicine. Second, to the extent European systems spend (relatively) less money on the elderly, they don’t have obviously worse outcomes (shorter lives, etc.) to show for it.

Subject the elderly to the more-or-less private sector part of the U.S. system and those financial endowments are likelier to drive allocations of health care resources. And indeed it tends to be individuals with high human capital endowments who get the jobs with benefits that provide decent health care. Certainly the state of the U.S. health care system isn’t going to make me, whether egalitarian-minded or acting on pure self-interest, more inclined on the margin to switch places with the middle-aged immigrant behind the McDonald’s counter next door to the office. A leveling possibility in the U.S. system is that a bout of unemployment coinciding with an unlucky draw from the distribution of health outcomes can leave a middle-aged economics PhD approximately as screwed as the guy at McDonald’s, but reasonable people can reject race-to-the-bottom egalitarianism. I’ll wager the lower-endowment exceptions with decent health insurance are disproportionately public-sector employees (where a common complaint from conservatives and libertarians is that they have it too good relative to their private-sector counterparts; see e.g. U.S. Postal Service, bargaining-unit employees of) and other unionized workers.

The egalitarian reformer of the U.S. may reasonably conclude that fairness is best served by making the U.S. system more like the Europeans, or by promoting public plans over private ones.

[*] *‘Shorter’ concept created by Daniel Davies and perfected by Elton Beard.

Inequality, Infant Mortality and Adam Smith

Robert Waldmann

Tilman Tacke and I are quite cautious in this paper which does not support my pet theory described in this paper. The stylized fact (which has returned after a brief absence from the data) is that, given the income of poorer quintiles, where the rich are richer more babies die. My pet theory is that this is due to “distortion of consumption” where the poor imitate the consumption of the rich (which is more costly the richer the rich are) and this foolish spending causes infant mortality.

It turns out that this bold idea wasn’t totally new after all. I just found it in
The Wealth of Nations by Adam Smith first published in 1776.

I explain after the jump.

The idea appears really really appears on page 1103 (Book 5 Chapter 2 article 4 section 2 “taxes on consumable commodities”) of my copy of The Wealth of Nations by Adam Smith published in 1776.

“Consumable commodities are either luxuries or necessaries,

By necessaries I understand not only the commodities which are indispensably necessary for the support of life, but whatever the custom of the country renders it indecent for creditable people, to be without. A linen shirt, for example, is, strictly speaking, not a necessary of life. The Greeks and Romans lived, I suppose, very comfortably though they had no linen. But in the present times, through the greater part of Europe, a creditable day lobourer would be ashamed to appear in public without a linen shirt, the want of which would be supposed to denote that disgraceful degree of poverty, which, it is presumed, no body can well fall into without extreme bad conduct.”

He argues that, therefore taxes on necessaries will drive up wages in the long run.
To understand you have to know Smith’s theory of wages which is that the steady state wage is such that population neither grows nor shrinks and at a lower wage population will shrink due to increased mortality due to poverty. So his claim is that taxing necessaries, including linen shirts in Europe in 1776, would cause the population to decline due to increased mortality. This only makes sense if he believes that, in order to wear a linen shirt, Europeans of his day would skimp on food to an extent which increased the mortality of their children.

This is made very clear when, in contrast, Smith argues that a tax on luxuries consumed by the poor will not affect wages in the long run

“The different taxes which have in the course of the present century been imposed on spirituous liquors, are not supposed to have had any effect on the wages of labour. …
The high price of such commodities does not necessarily diminish the ability of the inferior ranks of people to bring up families.”

That is a high price of linen shirts will necessarily diminish the ability of the inferior ranks of people to bring up families … by causing their children to die.

Smith definitely did not consider any form of contraception including abstinence. He is quite clear on the idea that steady state wages are determined by infant and child mortality in book 1 chapter 8.

To get to causation rich are richer so more babies die one just needs to add that average standards of living affect what goods “the custom of the country renders it indecent for creditable people, to be without.”

So I guess I wasn’t the first to come up with the idea. However, I was only 216 years late.

The most flaky far out interpretation of the stylized fact (destroyed by including pubhealth anyway) is clearly stated in The Wealth of Nations. Wow.

Is Douglas Holtz-Eakin still an economist?

Via Dr. Black, we get CNN reporting:

Younger, healthier workers likely wouldn’t abandon their company-sponsored plans, said Douglas Holtz-Eakin, McCain’s senior economic policy adviser.

“Why would they leave?” said Holtz-Eakin. “What they are getting from their employer is way better than what they could get with the credit.”

And why is it better? Because of the tax credit that is going away.

But let’s be nice to a man who has, in the past few months, eliminated his credibility to ensure that no ex-GWBush Administration official retains his or her reputation after leaving office.* Let’s assume he’s telling the truth.

So the young, healthy workers stay with the employer plan (that, miraculously, doesn’t go away in a miasma of Moral Hazard**). This leaves the older workers, who no longer get a decent deal from their employer, to find something in the marketplace.

Gosh, guess what happens when your selection group becomes more Adverse? Costs go up.

So let’s review what Holtz-Eakin has actually declared, explicitly and by implication:

  1. Younger workers will keep the employer-provided health insurance, since it would cost them more to buy on their own
  2. Older workers won’t be provided with insurance, and it will cost them Even More than More to buy health insurance on their own.

Even if we were ignoring that Health Insurance is NOT HEALTH CARE,*** John McCain’s proposal, by the admission of his own Economic Advisor, makes the current situation appear Pareto-optimal.

Which leaves us only one question: Why would any economist support it?

*I should probably stipulate positive here. For instance, anyone who followed Condi “I was National Security Advisor on 11 Sep 2001” Rice’s prior career wouldn’t have expected much from her.

**Using the actual Health Economics definition here, not the generic phrase to describe why we need to give Goldman Sachs and Jamie Dimon $700 Billion.

***Yes, I’m shouting. Claiming to address health care when all you address is health insurance is like claiming to have fixed a smashed-in door by changing the lock on it.

The Guy Who Will Say Anything to Get Elected

by Tom Bozzo

Brad DeLong blogs the train wreck at a clown show that is the McCain campaign so I don’t have to (big report due in a week, sorry ). He has a twofer.

First, there’s the the McCain health plan. Or, rather, the evolution from

We’re phoning it in, to

OMG, people are looking at it and figuring out ways it might suck, so

Sweeten it, but…

That’s too expensive for our small-government-conservative narrative, and voila,

Let’s commit political suicide!!

You know, we have llike seen this before. On health care:

  • McCain started with a tax credit that was equal in aggregate to the additional tax he levied on employer-sponsored health benefits in the first year–in later years the credit became much smaller than the tax.
  • Then it was like ooops, that’s not popular. We know–we never intended to subject employer-sponsored benefits to the FICA tax, only to the income tax.
  • Then it was like ooops, now we’re scared that the plan is fiscally irresponsible and will raise the deficit. We know–we will cut Medicare!
  • Then it was like ooops, we have to carry Floria. We know–have Sarah Palin say that McCain will not cut but will protect your entitlements.

Can’t anybody play this game? If we lose the election to these clowns, I am going to be really embarrassed. It seems as though nothing is competently staffed out–as if nobody in the McCain campaign cares about actually having policy proposals, but only about having something incoherent that an ignorant and lazy reporter can be deceived into thinking is a policy proposal.

Second, on the housing crisis, McCain pulls his new bailout plan out of his behind at the “debate.” However:

But it soon develops that much of Senator McCain’s proposal is not his but Barney Frank’s, and that the differences make it not a homeowner relief bill but an imprudent banker profit and rescue bill.

And so our so-called conservatives want to nationalize negative home equity (that’s some concern for the taxpayer, there):

[DeLong quoting the Politco] “Clearly we face the trade off that we would in fact be taking the negative equity position and putting it on the taxpayers books instead of putting it on the private lenders books or the homeowners books,” Holtz-Eakin told Politico. “We think the balance of risk has shifted to the point where this is the way to go.”

Does the McCain website say that? No.

But by the time I got to the website, it read differently: – McCain-Palin 2008: For those that cannot make payments, mortgages must be re-structured to put losses on the books and put homeowners in manageable mortgages. Lenders in these cases must recognize the loss that they’ve already suffered. [Apparently that last sentence was struck by a panicked editor — ATB.]

Apparently the schmuck who was assigned the job of writing up the web description did not believe the plan could possibly be what he was told it was.

Most deliciously, someone couldn’t stop from thinking out loud in naming the “program,” such as it is: it’s the “American Homeownership Resurgence Plan (McCain Resurgence Plan).” Apparently it’s change someone can believe in.

(Cross-posted at Marginal Utility.)

Krugman was Wrong today

Ken Houghton

Or at least optimistic.

McCain is going after Medicare and Medicaid.

But Douglas Holtz-Eakin, Sen. McCain’s senior policy adviser, said Sunday that the campaign has always planned to fund the tax credits, in part, with savings from Medicare and Medicaid. Those government health-care programs serve seniors, poor families and the disabled. Medicare spending for the fiscal year ended Sept. 30 is estimated at $457.5 billion.

At least he made it official.

Call those Florida relatives now.

UPDATE: PGL beat me to this one by about half an hour and is much nicer about the proposal than I over at Econospeak. (Then again, I’m not a “deficit hawk”—precisely because of reasons like this.)

Health plans

Robert was hiding this link over at his Stochastic site, where he allows himself to have unsophisticated but very readable translations of Angry Bear at times. Here is the link to an analysis of McCain’s plan for health insurance. The link to Stocastic Thought is on the left sidebar.

Also in that Health Affairs posting, this attempt to deal with the Obama plan and Mark V. Pauly on the whole kit and kaboodle.