Medical Malpractice Data and Inquiries

The current issue of Journal of Empirical Legal Studies includes an interesting data resource and survey by Bernard Black, et al., titled Medical Liability Insurance Premia: 1990–2016 Dataset, with Literature Review and Summary Information. Having just talked briefly about med mal premia and healthcare regulation last week, I was interested to read through the review and description of some of the data and trends. The authors have compiled data from the Medical Liability Monitor, “the only national, longitudinal source of data on med mal insurance rates.”  But they don’t stop there.

We link the MLM data with several related datasets: county rural-urban codes (from 2013); annual county- and state-level data on population (from the Census Bureau); number of total and active, nonfederal physicians, with a breakdown by specialty (from the Area Health Resource File, originally from the American Medical Association); annual state-level data on paid med mal claims against physicians from the National Practitioner Data Bank (NPDB), available through 2015; and data on direct premiums written by med mal insurers from the National Association of Insurance Commissioners (NAIC), available through 2015. We also provide a literature review of papers using the MLM data and summary information on the association between med mal insurance premia and other relevant features of the med mal landscape.

The data appendix, public data, and STATA code book (for cleaning the dataset) are also available from SSRN here. The survey includes a summary of some research into possible explanations for and consequences of medical malpractice premia: effect of med mal risk on healthcare spending, effect of med mal reform on med mal premia, effect of med mal rates on C-section rates and physician supply, effect of med mal payouts on med mal premia.

Noticeably absent from the literature they summarize, which they claim are the “principle” prior studies using MLM data, is any attention to or focus on market structure issues. Doubly so since there has been a consistent drop in rates over the past 15 years that is generally unexplained in the cited literature. Now, I don’t specialize in health care industry research, but I do know that in the past 15 years there has been an ongoing trend of consolidation among both health insurance companies and medical providing companies (e.g., hospital networks, physician groups, both).  I could easily hypothesize a couple potential dynamics:

  • Increased consolidation among insurance companies may lead to contractual incentives (by way of contract rates and performance measures) that affect the expected cost of med mal insurance.
  • Increased consolidation among hospital networks and physician groups leads to more consistent or standardized practices across larger populations of patients/services, thereby reducing uncertainty or volatility of medical service provision/quality and, thereby, expected cost of med mal insurance.

I suspect there are several potential channels, but it would seem a potentially fruitful area of research–and now there is a more convenient data set with which to play.

Death, Taxes, and Opportunity Costs

They say two things are unavoidable in life: death and taxes. I’d like to propose adding opportunity costs to that list.

In his State of the Union address in January, President Obama announced his support for a “moonshot” researchsotu initiative to cure cancer. “For the loved ones we’ve all lost, for the family we can still save, let’s make America the country that cures cancer once and for all,” the President announced to a hearty round of applause. And deservedly so. I suspect there are few, if any, people whose lives have not been touched by cancer, either suffering it directly or with loved ones.

Since then, I’ve had several friends on Facebook post their support of the President’s proposal and their personal desire to eradicate cancer. Some even arguing we should spend “whatever it takes” to rid ourselves of this horrible disease. But while I empathize with their heart-felt conviction, I can’t help but ask, “at what cost?” And I don’t mean (just) the dollars and cents. Okay, the billions of dollars. I mean the opportunity cost of focusing so many resources on the goal of “curing” cancer.

As an economist, one (should) necessarily asks the question: what is the marginal benefit versus the marginal cost of eliminating cancer. Sounds cold and heartless? Bear with me a minute.

According to the US Dept of Health & Human Services, Continue reading Death, Taxes, and Opportunity Costs

Do Medical Marijuana Laws Increase Hard-Drug Use?

According to a recent study by Yu-Wei Luke Chu in the Journal of Law & Economics, the answer is not just “No,” but that medical marijuana laws may actually decrease heroin use as consumers substitute the legal marijuana for heroin. Below is the abstract:

Medical marijuana laws generate significant debate regarding drug policy. For instance, if marijuana is a complement to hard drugs, then these laws would increase the usage not only of marijuana but also of hard drugs. In this paper I study empirically the effects of medical marijuana laws by analyzing data on drug arrests and treatment admissions. I find that medical marijuana laws increase these proxies for marijuana consumption by around 10–15 percent. However, there is no evidence that cocaine and heroin usage increases. From the arrest data, the estimates indicate a 0–15 percent decrease in possession arrests for cocaine and heroin combined. From the treatment data, the estimates show a 20 percent decrease in admissions for heroin-related treatment, although there is no significant effect for cocaine-related treatment. These results suggest that marijuana may be a substitute for heroin, but it is not strongly correlated with cocaine.

Fun (Facts & Fiction) With Numbers: Health Care Edition

The graph below, courtesy of the Kaiser Family Foundation, is featured in a VOX post purporting to explain why your health bills are gettng larger (all in one chart!).

kff deductiblesThe article focuses on the fact that deductibles have risen so dramatically as a major explanation for why it seems like we’re spending so much more on health care, even as health care expenses have been growing more slowly. There is some truth in the claim, and especially to the argument that people are more careful spending on health care when they have to pay for more of it up front, but there are some serious problems with this chart that can lead one to some pretty wrong conclusions.

First, what the graph doesn’t reflect is that the increase in premiums and the increase in deductibles are not, as the picture would appear, necessarily moving together for the people paying them. These are averages, and averages hide lots of information. Moreover, the graph makes it look like the two are increasing are independent of one another; i.e., that people are paying both 24% more in premiums and 67% more in deductibles since 2010. But that’s not the case. Since the ACA, many employers have moved to high-deductible plans that have lower premiums than the low-deductible plans that were popular pre-2010 (see below). What the graph hides is that people with low-deductible plans have seen higher than 24% increases in premiums while people with high-deductible plans have seen much lower increases in premiums–if not actual reductions in their premiums. What has changed is not necessarily how much people are paying for healthcare, but how they are paying it: in premiums or in deductibles. The graph above fails to show that.

Second, looking more closely at the news release on the Kaiser website, the 67% increase in deductibles is an increase in total deductibles paid–not the increase in the average deductible per employee. It reflects not only any increase in deductibles, but the increase in the number of people who have (higher) deductibles. That’s a pretty sneaky way to inflate the numbers on the graph to make it look like the average person is actually paying that much more. Consider the following two graphs, also from the Kaiser Family Foundation 2015 survey. kff-mkt-share-type kff-premiums The table on the left shows that premiums for high deductible plans (HDHP/SOs) are significantly lower than premiums for other types of policies. The table on the right shows that the market share of HDHP/SO plans has increased tremendously since gaining ground in 2006. In fact, to relate this to the first graph above, participation in HDHP/SO plans almost doubled from 2010 to 2015, meaning that 50 points of the 67% increase in deductibles could be attributable solely to more people choosing high deductible plans, specifically because the premiums are so much lower. And what the Kaiser report doesn’t say is how much employers contribute to the HSA plans that often accompany HDHP/SO plans. For some individuals, switching to the HDHP/SO plan may actually reduce their total out-of-pocket expense for health care. So while the original graph makes it look like everyone is paying more, that is likely not true for many people–and certainly not at the rate the original graph might suggest.

Finally, because the first graph is in percentages, it hides even more information that changes the story. Suppose deductibles had been $500 and increased to $1,000 or even $2,000. That’s would be a 100-300% increase! 300%! But that’s only $1,500. Not that $1,500 is chump change, but compared to the average annual premium of $6,251 (see the left-hand table above), that’s just 24%–ironically, about the total increase in premiums over the past five years. Even if that $500 deductible grew at the 67% shown in the first graph (which we know from #2 that it didn’t), the increase in actual out-of-pocket health care costs would have been $335–not quite the cost of two lattes a week.

Mark Twain is famously quoted as saying (and actually quoting Disraeli), “There are three kinds of lies: lies, damned lies and statistics..”  I’m not saying VOX (or Kaiser) are lying. But be careful when you see things like VOX’s report about some “fantastic new chart.” It’s far too easy to be misled if you don’t think carefully about the numbers being thrown about.

Bonus: If you’re interested in what the research says about the effects of high deductible plans, RAND has a nice summary site with links to additional resources.

Health Insurance Mandate Increases the Federal Deficit….?

A new report by the Congressional Budget Office (CBO) suggests that eliminating the mandate for purchasing health insurance would actually reduce the federal budget deficit by $305 billion. How? Because the estimated additional 14 million people in 2025 who would choose not to be insured would save the government roughly $311 billion on subsidies and health care expenses, while sacrificing $6 billion in revenues from the expected penalties (or taxes, depending on how you follow Chief Justice Roberts’ logic).

Two important observations:

  1. 14 million uninsured people?! Yes…but that would be the expected total to 41 million in 2025 (meaning even with Obamacare as it currently is, the CBO expects 27 million uninsured people anyhow).
  2. Another consequence of eliminating the mandate: insurance premiums for those who DO purchase insurance are estimated to go up another 20% on top of existing expected rate increases. This reflects the free-riding problem that led to the mandate being implemented to begin with: people who have low expected health care expenses (i.e., healthier people) are the very ones most likely NOT to buy insurance. Without the healthier people in the risk pool, the expected cost of caring for those who DO buy insurance goes up, which increases the cost to the insurer–and that cost is going to be passed along to the people who buy the insurance. So without the mandate, the health care costs are covered by the people who value the insurance enough to participate (i.e., the ones who expect to benefit from having it available). The mandate forces healthier people (who expect not to need medical care) to subsidize the cost of care for everyone else by paying more into the risk pool than they expect to get back from it.

You can see the CBO’s preliminary estimates here.

Healthcare in the 21st Century: The Role of Competition

This looks like a very interesting program, if you happen to be in the Seattle area on Sept 18.

Healthcare in the 21st Century: The Role of Competition
Friday, September 18

Seattle University School of Law


Healthcare is the single largest sector of the economy, it is undergoing extensive and controversial reform, and the central goals of reform – universal coverage and cost control – have not yet been achieved. Since the Affordable Care Act relies heavily on private markets to provide health services and health insurance, competition will play a crucial role in reform. Yet, competition policy issues are especially challenging in healthcare, where markets are distorted by the fee-for-service payment system, insurance coverage, and market power. Competition can help correct these distortions, enhancing access and affordability, but it can also threaten the supply of doctors, new drugs, and higher levels of care. The challenge is to develop policies that achieve the right balance of these goals. The symposium will address many of the key current competition issues in healthcare, including Accountable Care Organizations, acquisitions of physician groups by hospitals, reverse-payment settlements, federal negotiation of drug prices, mergers of insurance companies, off-label uses of prescription drugs, the regulatory environment for the healthcare workforce, and market provision of assisted reproduction technologies.

See the conference page for the agenda and registration information.

HT: D. Daniel Sokol

Incentives Matter: ObamaCare Edition

Merrill Matthews has a great post on today about some “surprising” developments in response to the ObamaCare health insurance debacle. In short:

1. (Not really news) The cost of most health insurance programs for young and/or healthy individuals is predicted to increase dramatically to cover the costs of coverage imposed by the law…to the point that many will have no incentive to purchase the coverage until they actually need its benefits (i.e., a perverse incentive created by prohibiting exemptions on pre-existing conditions which, ironically, also drives up the cost of the insurance to begin with).

2. (Somewhat news) Since the IRS has no authority to proactively collect the fine/tax/penalty from people who refuse to buy insurance and can only withhold tax refund payments, smart taxpayers who opt out of health insurance will simply make sure they have no tax refunds coming by adjusting their withholdings accordingly–and pay little or no fine. If taxpayers start using this loophole in earnest, expect Democrats to attempt to pass legislation allowing the IRS to start beaming money directly out of your checkbook or seizing assets to pay for the non-tax-fine-“no, it’s a tax” penalty.

3. (A truly entrepreneurial twist!) Some life insurance companies, which are not affected by ObamaCare, have begun offering policies that allow policyholders to receive pre-demise benefits from their life insurance for “critical illness” expenses. Kind of a “getting-close-to-possibly-dying” rider to the traditional life insurance policy. Beneficiaries can use the advanced payments to cover the medical bills (if they want) and the death benefit is reduced by the amount of the payment. Truly ingenious…exactly the kind of creative, market-driven genius that has fueled the American economy since before there was an American economy.

Matthews summarizes it quite well in a way that captures what this blog is all about:

See, that’s the amazing thing about markets.  They try to meet the needs of consumers rather than the wants and political aspirations of politicians.  And sometimes they can even undermine those political aspirations.