Myths of U.S. Health Care with Katherine Baicker (Ep. 2)

Show Notes

In 2008, when Oregon decided to expand its Medicaid program through a random lottery, Prof. Katherine Baicker struck research gold.

It presented the economic health care researcher with a unique opportunity to study the true costs and benefits of health care expansion through a system that provided a randomized trial. The project helped refute a number of myths surrounding health care expansion when its findings were published in 2013, amid renewed debates over health care in Washington.

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Transcript:

Tape: From the University of Chicago, this is Big Brains with Paul Rand, conversations with pioneering thinkers that will change the way you see the world.

Paul Rand: Healthcare, it’s one of the trickiest issues in American politics. From the Affordable Care Act to health insurance deregulation, politicians can’t seem to find common ground. Katherine Baicker is one of the most acclaimed healthcare policy researchers today, and recently was named as Dean of the University of Chicago’s Harris School of Public Policy. From serving as an economic advisor to President Bush, to a groundbreaking study of expanding Medicaid in Oregon, Kate’s work has led to new insights into the true costs and benefits of healthcare expansion. I talked to Kate about her innovative research and her ideas for improving the American healthcare system on this episode of Big Brains.

You really came through with what was really regarded as a tremendously important breakthrough study around something called the Oregon Project. Can you talk a little bit about that for us please?

Katherine Baicker: The Oregon Health Insurance Experiment arose from a remarkable coincidence. Oregon had a waiting list for its Medicaid program. Before the ACA or Obamacare states had a choice about covering low income, non-disabled adults in their Medicaid program. Oregon decided to, but then ran out of money, and so had a waiting list for people to enroll in the program. They decided the only fair thing to do would be to draw names by lottery from this waiting list. That’s a randomized controlled trial to a researcher. That’s not why they did it. They were looking for the most fair way to allocate a limited number of spots. But when my colleague, Amy Finkelstein, and I heard about this, we thought this was an unbelievable opportunity to really learn what Medicaid does. How does it change people’s health care spending? How does it change their financial security? How does it change their health outcomes using the rigors of randomized controlled evaluation that we have for science, but we almost never have for public policy?

Paul Rand: Okay. And it’s about 10,000 people, is that right, out of a group of about 80,000, is that right?

Katherine Baicker: They had almost 90,000 people on the waiting list. They drew names by lottery until they got 10,000 enrollees.

Paul Rand: And what did you find out?

Katherine Baicker: We could dispel a lot of myths about the Medicaid program with the results from the Oregon Health Insurance Experiment. We can dispel the unduly optimistic view of the program, which is that Medicaid is such a wonderful program, that it would make people healthier, it would get them out of the emergency department, it would get them back to work and it would improve their health and lives while saving money. We could also dispel the unduly pessimistic view of the program, which is Medicaid is such a badly run program, it doesn’t pay providers enough, it doesn’t really improve the health of enrollees, but it costs a lot of money. It’s a terrible program. Well, what we found is of course, somewhere in the gray area, in the middle. People who enrolled in Medicaid used more healthcare. They went to the doctor more, they got more prescription drugs, they went to the hospital more. All of that might’ve been expected. What was surprising to a lot of people is that they also went to the emergency department more, not less. They went to the emergency department about 40% more. So this is a big increase.

Paul Rand: And is that expected because they now realized when they previously gone to the emergency department, they were going to at least be presented a bill for it, even though they would have gotten treatment at the time? Would that have worn off if you kept this going? How long was the study for?

Katherine Baicker: We collected data over a number of years after people were selected in the lottery. And so people were very surprised at the increase in emergency department use. Economists were a little less surprised. What had happened is something that used to be very expensive was suddenly free. And economics is pretty sure as a discipline that demand slopes down, and when you make something free, people use more of it. And that’s what we saw. This was surprising to many other people, because there’s this perception, a correct perception, that when people go to the emergency department, the emergency department can’t turn them away just because they’re uninsured. They have to treat anyone who needs stabilization or urgent care. But they can, as you note, present a giant bill. And that means that a number of people were dissuaded from going to the emergency department because of the prospect of that bill.

But when they got insurance, they knew they could go without being worried about that. So people were really surprised by this increase in emergency department use. And there were a couple of hypotheses that we could investigate. One is, maybe this is a temporary thing. There’s pent up demand. It’s going to dissipate over time. So we went back to the data and we looked at what happened in the first six months, versus the second six months, versus the third and the fourth. And we saw no reduction in that bump in emergency department use. There was 40% higher use among those insured because of the lottery compared to the uninsured in the first six months and in the last six months. So it does not seem to dissipate over at least the first two plus years.

Paul Rand: Was there any thinking whether that was something that education would end up being able to address to kind of break an ingrained behavior, or not something that you thought would be changeable?

Katherine Baicker: This is something that policymakers have been thinking about, and a lot of states have been experimenting with ways to increase people’s use of primary care or urgent care when it’s available instead of emergency departments. In fact, we saw the biggest increase in emergency department use was for conditions that you could perhaps treat in a doctor’s office or that were preventable with better care before it got to an emergency situation. So maybe if you charge people a copay for the emergency department, but not for the doctor’s office, you would see more use there. States have experimented with that with pretty middling success. It is harder to implement than it sounds on paper, because it’s hard to know what’s an emergency ahead of time and deciding later, oh, guess what? That emergency department from last week is subject to a copay. That’s both hard to enforce and does not generate the incentives that you would like to steer people to the doctor’s office.

And that question gets to the second hypothesis, which is maybe the people who are going to the emergency department just didn’t have a doctor to go to. And we saw about a 50% increase in doctor’s office visits, maybe those were different people. Maybe some people found a doctor and they went to the doctor, and some people couldn’t gain access to a doctor so they went to the emergency department. Well, that’s not what we found either. The hypothesis that many people had was that Medicaid would make the doctor’s office a substitute for the emergency department. You’d switch over to the doctor’s office once you were insured. Well, we found that Medicaid actually made the doctor’s office in the emergency department more complimentary, not more substitutable. People were more likely to go to the doctor, more likely to go to the emergency department, and more likely to go to both the doctor and the emergency department. So that hypothesis didn’t bear out in the data either.

Paul Rand: So are the results in a medical usage higher than they are the general insured population than what you saw in this project?

Katherine Baicker: Looking more broadly at the health care used by people who have Medicare, commercial insurance, private insurance, Medicaid, or the uninsured, people who gain access to Medicaid look a lot like other privately insured people in their healthcare use, although they do use the emergency department more. The uninsured and the insured overall use the emergency department at about the same rate. Medicaid enrollees use it a bit more. What’s really striking is that the uninsured go to the doctor and other sites of care much less than their insured counterparts. So there is this misperception that the uninsured are clogging emergency departments. That’s not true. It’s rather that the uninsured are not present in your doctor’s office or other places that you see other patients. So they’re disproportionately represented in the emergency department. Compared to the other sites they use care, but they’re not clogging the emergency departments any more than the insured pool overall.

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Paul Rand: Talk about the benefits that you saw out of the health benefits, but even things that went beyond what you’d expect to be health benefits.

Katherine Baicker: One of the benefits of being insured that I think is underappreciated in the debate is the financial security that insurance can bring. Insurance is fundamentally a financial product meant to protect you against the risks associated with needing something really expensive. Think about homeowners insurance. It doesn’t keep your house from burning down, it keeps you from being financially ruined if your house burns down. So for those people who were uninsured, not only were they not getting access to care, perhaps, but the care they were consuming was imposing a much bigger financial burden on them that spilled over to other parts of their lives. So we found that when Medicaid was expanded, people were much less likely to have bills sent to collection, they were much less likely to skip paying other bills or have to borrow money to pay their other bills. They reported being much more financially secure.

And that ought to be a consequence of being insured, but it’s not clear ahead of time, whether the uninsured were paying all that much money for their care or not. And the answer is, yes, being insured substantially improved their financial circumstances. So that’s one benefit. The real punchline, of course, is what happened to people’s health. That’s what policy makers were reasonably focused on. And there it’s a nuanced story. When we ask people about their health, is your health excellent, very good, poor? People were much more likely to say their health was excellent, very good or good. They said they felt better. They were also substantially less likely to be depressed. And this is an important health burden that’s undertreated in the uninsured population. We saw a drop in clinical episodes of depression of 30%, which is remarkable. What we did not see, however, was detectable improvements in people’s chronic physical health conditions. We didn’t see any measurable improvements in blood pressure, in diabetic blood sugar control, in cholesterol, in obesity. And that was surprising to many advocates of expanding insurance.

Paul Rand: Are those benefits seen in the more broadly based insured market, as opposed to this controlled segment? Or are they consistent?

Katherine Baicker: On the one hand, it is surprising to many not to have seen an improvement in blood pressure with access to health care that Medicaid affords. On the other hand, we have chronic high blood pressure problems across the population in the U.S. So that doesn’t mean that insurance is not doing anything good. Insurance is doing lot of things. It does mean that as a health system, we have not adequately addressed these chronic physical health measures or these chronic physical health conditions. We haven’t figured out how to manage those conditions, particularly in low-income populations, but not exclusively so.

Paul Rand: If it’s possible to break it down and say, if there’s one thing that’s stuck with you out of having done this study that is continuing to shape the way that you approach your work, either surprised you, disappointed you, informed you?

Katherine Baicker: I’ve tried hard to make sure these results are in front of policy makers at the time that they’re trying to make decisions about Medicaid. And it was really fortuitous that this study came along at the moment policymakers were thinking whether to expand in states, then whether to dial back in states. This is a time in our country that we’re spending a lot of attention on what to do with Medicaid policy. So it was very lucky to have these results to show to policymakers when they needed them. The challenge is translating them in a way that’s useful, making sure that they’re not misrepresented, helping to inform the debate without going beyond what the study can really show. Policy makers, and the popular press and lots of people I talk to about this study always want me to say, does this mean we should expand Medicaid, or does this mean we shouldn’t expand Medicaid?

And I will never answer that question because the study can’t tell you that. I can tell you based on not just this study, but on the broader literature, my best reading of what the cost of expanding Medicaid are, what the benefits are, who benefits, who bears the costs, how program design affects those things, but none of that can tell you what your values are. None of that can tell you what your public policy priorities are. If it were a program with all upside and no cost, that would be easy. If it were a program that costs a lot of money and didn’t help anyone, that would be easy. But public policy is rarely easy. There are always trade offs involved. So when policy makers or reporters say, so what does this tell us we should do about Medicaid? My answer is, it tells you, you should weigh these costs against these benefits and decide what your priorities are and act accordingly.

Paul Rand: Kate, as you think through the moral or even potentially ethical questions that come around making healthcare choice decisions, health insurance decisions, what are the major drivers that fit into that equation?

Katherine Baicker: This is such an important question. Is healthcare a right or a privilege? And it’s one that I wish we would wrestle with explicitly in our debate about health policy, in particular safety net programs. And the challenge is that healthcare is not one thing. There’s a whole continuum of healthcare from the highest value care that saves lives at pennies a life, or the lowest value care that costs millions of dollars to extend life by days, or maybe even not at all. And the decision we have to make for people who are at the low end of the income distribution is how much do we want our social programs to cover? What should Medicaid cover? Should it cover everything for everyone? Should Medicare for people across the income distribution cover everything for everyone? Well, the miracle of modern medicine is that there’s so much care that we could give people that we could spend more than 100% of GDP on healthcare, giving everyone every item of care that’s available to them.

That’s clearly not the most effective use of our public resources. We also need to spend money on education, and on highways, and on food stamps, and on housing and on reasonable tax rates. So the question we need to wrestle with is what should our public insurance programs cover? And people may have different views on how much care should be included in each of those public insurance programs, but we should make our decisions with the knowledge that covering more care means we can cover fewer people because there’s a finite amount of money to go around. That leads you to a pretty uncomfortable conclusion for a lot of people, which is that people who are on public programs may get a bundle of healthcare that’s less generous than people who have a lot of money and can buy anything they want.

And that’s not a place that a lot of people are comfortable landing. It’s helpful to think about housing. Does everyone have a right to a home? Does everyone have a right to the same home? We make different choices for housing, for food, for healthcare. But if we’re not willing to acknowledge that we live in a world of budget constraints, it’s awfully hard to arrive at rational policy for Medicaid.

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Paul Rand: Let’s pull the lens back a little bit further and say, you get back to your office later today, Kate, and you get a phone call and say, Kate, we’ve decided we’re going to put you in charge in fixing our overall healthcare system, and you’ve got five years to do it. What do you do?

Katherine Baicker: That’s a great question, and one where Medicaid policy, I think is vitally important to the social safety net, but Medicare policy is what drives so much of our system’s delivery. Medicare is a major purchaser of health insurance. It drives the care for people over age 65, but because that’s such a substantial share of our population, it also drives a lot of the care that people under age 65 get. So it’s vitally important to get Medicare policy pointed at high value care in a way that it is not now. I spent six years on the Medicare Payment Advisory Commission, which advises Congress about Medicare payment policy. I’m on the Congressional Budget Office Panel of Health Advisors. There are a lot of different entities wrestling with what to do with Medicare policy. So I would try to focus on two different types of tools. First, it’s important that patient co-payments are lined up with the value of healthcare, and that doesn’t-

Paul Rand: What does that mean?

Katherine Baicker: Yeah, what does that? That’s a little word soup, isn’t it?

Paul Rand: Yeah.

Katherine Baicker: A word salad. What patients have to pay for their care out of pocket very much affects what care they get. If you have a high co-payment, you’re less likely to get that care. And we saw that in the Oregon Medicaid Experiment, that when people’s out of pocket costs went down, they went to the doctor more, they went to the hospital more, they went to the emergency department more. That’s consistent with everything that economics tells us about how people behave. But you can take that too far and think, therefore we ought to have high deductibles across the board, high co-payments across the board, because if you make things free, people consume too much care.

Yes, when you make things free, people consume too much care that’s of low value, but they also probably consume more care that’s of high value. Put another way, with high co-payments, you do stop some people from using care that’s of really low value. You stop that third MRI that’s not really going to produce any new results. But you also probably dissuade people from care that would be a very high health value. There’s evidence that even a $5 co-payment keeps people from using drugs that are of known efficacy with really high health benefit.

Paul Rand: So high co-pay would not be really the right first step of the solution?

Katherine Baicker: I would say crude across the board, high co-pays are not the right policy tool. Rather co-pays should be tied to the value of care. [crosstalk 00:20:25]

Paul Rand: Step one, you look at figuring out how to tie copay to the value of care, would be one of the steps that you would take. What else would you do?

Katherine Baicker: I think that step one is necessary, but far from sufficient. And in the past, we’ve spent a lot of time talking about how to get patient co-payments right, high deductible plans, coupled with health savings accounts, safe harbors for preventative care, trading off out of network versus in network co-payments and network breadth. All of that’s on the patient side. That’s important groundwork, but where I think we’ll really get bang for the buck is in step two, which is reforming provider payments.

Paul Rand: Okay. What does that mean?

Katherine Baicker: The way we purchase healthcare very much drives all of the overuse, under use, misuse that we see in our system. Medicare, for example, is largely fee for service. 30% of Medicare beneficiaries are in private plans through Medicare advantage, but 70%, the vast majority, are in traditional Medicare where you can go to almost any provider, get a service and the provider gets paid for that service. That fee for service payment structure drives a lot of care. Much of that care is wonderful in life saving, but a big chunk is expensive and doesn’t produce health benefits that are commensurate with that expense. If we could pay providers rather than for providing more care, for providing higher quality care, for improving patient outcomes in the most effective way possible, that would really reduce overuse of care of questionable health benefit while preserving access to care that’s really going to improve people’s lives.

That could be bundled payments. That could be episode based payments. It could be accountable care organizations. There are a lot of policy levers that might be deployed, but they all involve aligning provider incentives with high value care. Parallel to aligning patient incentives with high value care. The third would be ensuring that we have healthcare markets that are functioning as well as possible. It’s clear that healthcare is different from lots of other goods. All of the analogies that economists trot out to buying cars, or homeowner’s insurance, or widgets, those can be helpful to illustrate specific points, but we all have to acknowledge that purchasing healthcare is never going to be like purchasing a car, nor should it be.

That said, a lot of the policy options that we’re hanging our hopes on now rely on patients having choices among providers, patients having choices among insurers, insurers having choices among providers. Those policy levers don’t work in markets that are dominated by one insurer, or one hospital system, or one big provider group. If we could have more competition, we could deploy some of the levers that work in other markets in healthcare much more effectively. Doctors that provided care of low value at a high price wouldn’t get contracts with insurers. Insurers whose premiums were too high relative to the benefits that enrollees got wouldn’t get enrollees. That’s really important to getting patients sorted to the providers who are right for them, and having insurers construct insurance plans that really deliver on value.

Paul Rand: So if there are pressure points going up, and at least in the little echo chamber that I live in, if I look at my Facebook feed, I’d say even over the last year, the number of posts I’m seeing about somebody paying $500 for diabetes medication or having an increase in a bill that they didn’t feel like they had in the past, those types of posts seem to be coming with a greater degree of frequency.

Katherine Baicker: Part of what you’re highlighting is a remarkable lack of transparency in our healthcare system. The bills you see as a patient often bear no relationship to what your insurer actually pays to the providers. The list price for drugs often bears no relationship to what anyone except uninsured people pay. And that is a real challenge for addressing where the drivers of healthcare spend and why, and therefore what the appropriate policy solutions are. It is incredibly difficult as a patient to figure out who actually got paid what for care that you received. And that is part of the problem in deploying a set of tools where patients are supposed to choose the provider who’s providing the best value. How are they even to know that? How are doctors to know which hospitals provide the best value for patients if they can’t see what the hospitals are actually paid? And just as importantly, what the outcomes are for patients who show up at that hospital? Which hospital has the best recovery rate? Gets patients home the most quickly? We’re trying to enlist doctors to help steer their patients towards those right sites of care.

Nobody has adequate information on this. I hope that that’s changing. It’s in part changing because of the data revolution that we are all experiencing in many realms in terms of data availability, real-time processing of it, and then access to key information to be able to make decisions at the moment you need to make decisions. We’re starting along that road, and maybe that’s the reason people are starting to see more of this disconnect between what they thought they paid, and what somebody else paid and what the bill says. Maybe step one is to start to see that and say, this can’t be right. But that doesn’t actually tell us what the right policy solution is. And having different ways of purchasing healthcare, getting back to provider payment reforms that we talked about in the context of Medicare, having different ways of purchasing healthcare is likely to be a key tool in getting higher value from the system.

Paul Rand: Okay. Terrific. Well, you’ve been a wonderful guest today. Thanks for being with us on Big Brains.

Katherine Baicker: Thanks for the opportunity.

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