14 April 2011

Irrational decision making in healthcare

Paul Ryan's budget plan as sparked a widespread conversation about the nature of Medicare benefits (and to a lesser degree, Medicaid). I want to focus on an issue that seems incredibly obvious to me, yet seemingly eludes clever economists like Tyler Cowen, Matt Yglesias, and Paul Krugman.

One of the biggest problems regarding the provision of health care, and the design of a system to do so in a "cost effective" fashion is the cognitive and temporal disconnect between decision making and the consequences thereof. The trio of economists I mentioned above have all, at various times, reflected on the moral hazard of bailing out banks that are too big to fail. For the most part they regard this as a Bad Thing.

On the off chance you doubt my assertion in the preceding paragraph I recommend you read about how and why parents continue to be snookered by the anti-vaccine movement. In Seth Mnookin's excellent book The Panic Virus he explains an aspect of it this way:
Because the risks associated with foregoing vaccines feel so hypothetical, and because the infinitesimally remote possibility that vaccines could hurt our children is so scary, and because there's nothing in our daily experience to indicate that a little fluid administered through a needle would protect us from a threat we can't even see, it's very hard for parents working by intuition alone to know what's best for their children in this situation.
I don't want to turn this into a conversation on vaccination (I've said my piece already). In fact I bring it up only to anecdotally illustrate how hard it is for those not schooled in medicine to make the right health care decisions on intuition. Here's another example:

How should people decide between surgery 1 and surgery 2?

As it turns out, most people have little difficulty saying what they think about this trade-off. When faced with a choice between dying and living with a colostomy, >90% of the people we surveyed said they would choose to live with the colostomy. They feel even stronger about their preference for the other three surgical outcomes, compared with death. In fact, >90% of the people we surveyed preferred each of the four surgical complications to death. Based on these values, it seems obvious that surgery 1 is the best treatment for >90% of people. And yet in our studies we have found that, when given this choice, a majority of people choose surgery 2.

All of this has been a very long winded way of demonstrating and saying that people are very bad at making good health care decisions. Giving patients the option to forego future medical care in return for immediate benefit sounds great in theory. However, human life is held to have an exceptional value such that we mandate doctors and hospitals provide care even to those who cannot afford it.

It is unfathomable that a society in which pitched battles are fought over the removal of life support from brain dead individuals can reasonably deal with people who have made poor decisions about their future health needs. Say you did give up your benefits package for cash and Cowen's "minimalist package" (set broken limbs and offer lots of potent painkillers) only to be diagnosed a short time later with non-Hodgkin's lymphoma. Your prognosis is good if, and only if, you take rituximab for the rest of your life. Unfortunately it's not covered in Cowen's minimalist package.

Sure, this is an example I concoted specifically to be problematic with Cowen's proposal. It is not, however, unlikely. In essence this plan would force bankruptcy and/or an early death upon those who gambled on not getting a manageable disease and lost, i.e., it is actually worse than the status quo.

In case you aren't convinced that health care consumers are foolishly optimistic, let's review what happened when copays were increased in order to try and save money. From the NEJM:
As compared with matched control plans in which copayments for ambulatory care were unchanged, Medicare plans that increased these copayments by an average of 95% for primary care and 74% for specialty care had a reduction in the number of outpatient visits but an increase in hospital admissions, in the number of days of hospital care, and in the proportion of enrollees who used hospital care.
That is to say, people stopped going to the doctor for checkups and gambled on staying healthy until something went catastrophically wrong. What was the economic result of this?
Even if we used the upper bound of the 95% confidence interval for the estimate of outpatient visits, used the lower bound of the 95% confidence interval for the estimate of inpatient admissions, and doubled the average reimbursement for an outpatient visit, additional expenditures for hospital care would still exceed any savings from the copayment increase by a factor of nearly two.
Economists prattle on endlessly about the optimal way to provision health care; what they all seem to miss is that we are very bad at making decisions, even easy ones. This proposal sets and baits a trap in which people gamble on their future health. Leaving the losers of the gamble to die earlier, bankrupt themselves, or be supported by society.

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