Extraordinary Stress and Pessimism Take a Grim Toll

Why poor Americans are dying younger.

Life expectancy in the U.S. declined slightly in 2016, as it did in 2015, and — at least as important — the overall trends continue to mask increasing disparities across socioeconomic groups. Carol Graham of the Brookings Institution helps explain why. Her important new book is the empirical version of “Hillbilly Elegy.”

I have long suspected that stress and lack of hope are to blame for widening the gap in life expectancy between lower and higher earners. Graham uses survey data to support this explanation, documenting striking differences in stress and optimism across segments of the population.

It’s little surprise that low-income Americans report significantly higher levels of daily stress than high-income Americans do. But Graham also notes that the typeof stress they typically experience is especially harmful to health, because it seems to be outside the individual’s locus of control. She argues that “stress that is associated with daily struggles and circumstances beyond individuals’ control — as is more common for the poor — has more negative effects than that associated with goal achievement.”

One example of what can cause this type of stress is an unpredictable work schedule. More than 40 percent of early-career hourly workers in the U.S. learn of their work schedules less than a week in advance, recent evidence shows. Among retail and food-service workers, almost 90 percent face variation in at least half of their usual work hours.

Graham also finds major differences across income groups in reported physical pain. Almost 80 percent of people with household income below $24,000 a year reported being in physical pain the day before they were asked, compared with only about 30 percent of those with incomes above $90,000 a year. Her basic findings have been confirmed by David Blanchflower of Dartmouth College and Andrew Oswald of the University of Warwick, using a different data set. These researchers conclude that an astonishing 34 percent of Americans experience bodily aches and pains either often or very often.

The U.S. stands out on many of these measures compared with other countries. The gap in stress levels between low- and high-income people is noticeably smaller in Latin American countries, for example. Low-income American workers are also lesslikely than Latin Americans to believe that “hard work gets you ahead.” And Blanchflower and Oswald show that reported pain is higher in the U.S. than in any other country they study. “As the U.S. is one of the richest countries in the world, and in principle might be expected to have one of the most comfortable lifestyles in the world,” they note, “it seems strange — to put it at its mildest — that the nation should report such a lot of pain.”

Graham notes one encouraging trend: While the differences among income groups are growing, the gaps between races are shrinking. Life expectancy differences between whites and African Americans are narrowing, even as the gaps by income within each race are widening. And low-income African Americans are quite hopeful about the future — more so even than non-poor white Americans.

After illuminating striking differences across income groups in pain, hope, optimism and stress, Graham is correct in pointing out there are no easy fixes at hand. She’s also right to say that the best way to start to address the gaps is to work to better understand them.

Originally published at bloombergview.com on January 17, 2018.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.


Out-of-Pocket Health Costs Are Rising, But Not That Much

As a share of total health spending, they’re actually shrinking.

“Dad, I got a bill for $1,113.” One of our daughters was incensed. “I went to my doctor with a simple question. She sent me downstairs where they drew a few tubes of blood for tests. It took two minutes. How do I owe over $1,000?”

She’s not the only one outraged by out-of-pocket health costs in the U.S. Many of us feel we are paying more for less and less insurance coverage. We blame high-deductible plans, rising co-pays and other policies that seem to shift more costs onto patients. Headlines such as “Out-of-pocket health spending in 2016 increased at the fastest rate in a decade” amplify the unhappiness.

But the perception of ever higher out-of-pocket health-care costs obscures important facts.

It’s true that, in 2016, those costs rose 3.9 percent. But health-care costs overall increased 4.3 percent, so as a percentage of total health-care spending, out-of-pocket costs actually fell. And this has been the case for several years. In 2010, total out-of-pocket costs amounted to almost $300 billion, 11.5 percent of national health expenditures. By 2016, they rose to slightly more than $350 billion, but fell to 10.6 percent of total spending.

What’s going on? Well, a lot of people point to businesses shifting more workers into high-deductible health plans. Such plans save an employer, on average, more than $1,500 per insured family. In 2017, more than half of all insured American workers had health insurance with a deductible exceeding $1,000 — that’s almost twice as many as had such policies when Obamacare passed. But that’s not all that’s changed.

The Affordable Care Act has also limited many Americans’ exposure to extremely high out-of-pocket spending. By expanding insurance coverage, it has lowered the number of Americans who pay the full bill for all their health care. And it placed a legal limit on out-of-pocket costs for people who have insurance. (Disclosure: We both helped design the Affordable Care Act.)

Before Obamacare, Americans who contracted cancer or had a serious accident or gave birth to a premature baby could be forced into bankruptcy. Today, even high-deductible plans must limit out-of-pocket expenses to $14,300 for a family or $7,150 for an individual. This seems like a lot of money — and it is — but these limits have significantly reduced bankruptcies caused by catastrophic health-care costs. And they’re a big reason that, despite higher deductibles, out-of-pocket spending has fallen as a share of overall health spending.

To some extent, people’s outrage can be explained by the psychology of high deductibles. Most people are not very sick, and find it daunting to have to pay $3,000 before their insurance benefits kick in.

What’s more, people tend to deal with deductibles irrationally. Even patients with chronic illnesses who go to the doctor a lot, get a lot of tests and are maybe even hospitalized — and therefore are sure to reach their deductible limit in the year — hold off getting medical tests and treatments at the start of the year, research has shown. Yet delaying medical care because of the deductible can undermine a person’s health. This is why the Affordable Care Act requires insurers to cover, without deductibles, preventive services and three primary care visits. This, too, has enabled Americans to save on health-care costs.

Of course, it’s very unpleasant to receive a bill for $1,113 — but it is dramatically more so to face bills amounting to $20,000 or $30,000 when you get seriously ill. We believe health insurance should involve more protection against very high costs, even as it provides more exposure to small ones. That’s effectively what is happening.

Originally published at bloombergview.com on January 4, 2018.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Scenario in Senate Bill: Drug Rationing

By slashing Medicaid’s budget, the health-care bill would lead to prescription price controls.

Senate Republicans may not realize it, but their repeal-and-replace health-care legislation, if passed, would set the U.S. on the road to European-style price controls and rationing of prescription medications. This would follow fairly directly from the enormous cuts to Medicaid that the bill would impose.

By 2026, according to the Congressional Budget Office, federal spending on Medicaid would be reduced by 25 percent. And the cuts would build further every year thereafter.
Starting in 2025, the federal reimbursement to states for each person covered by Medicaid would rise only at the rate of overall inflation — far less than the rise in medical costs for those beneficiaries. Consider that, over the coming decade, spending per person on Medicaid is expected to grow by about 4.5 percent annually, while the overall inflation rate is projected to be more like 2.5 percent. A per capita cap that increases only at the rate of inflation would thus amount to a cut in federal spending on Medicaid of about 2 percent a year.

After a couple decades of this — on top of the cuts through 2026 — federal support for Medicaid would be cut to about half the level it would be without this legislation.

How would states respond? The CBO says they “would continue to need to arrive at more efficient methods for delivering services (to the extent feasible) and to decide whether to commit more of their own resources, cut payments to health care providers and health plans, eliminate optional services, restrict eligibility for enrollment, or adopt some combination of those approaches.”

One specific and perhaps underappreciated thing states could do would be to aggressively restrict Medicaid beneficiaries’ access to drugs, and impose price constraints on the medicines allowed.

This would come as a blow to both beneficiaries and drug manufacturers, because Medicaid is the largest insurer in the country. In 2015, it spent about $30 billion on retail prescriptions for its 70 million beneficiaries — about 10 percent of the national retail drug spending total.

The per capita caps would also affect state incentives to cover newly discovered breakthrough drugs. Currently, under Medicaid, state governments pay only a fraction of the cost of such medicines, typically well under 50 percent. (The exact share depends on the state’s per capita income and the type of beneficiary involved.) The rest of the cost is paid by the federal government. Even with this generous federal cost-sharing, state governments still often balk at covering new drugs.

Most states have been reluctant to pay their share of drugs to treat hepatitis C, for example, and have instead significantly limited access to only those patients who meet specific conditions. Waves of lawsuits have been filed to push states to provide more generous access to the medicines.

Now imagine what would happen with a per capita cap on federal spending. Any new drug entering the system whose costs had not been anticipated would have to be borne entirely by the state. A governor choosing whether to pay the full freight or, say, hold down tuition at public universities might well decide that access to the drugs should be limited, even if the drugs are a major clinical breakthrough or could reduce other health-care spending over time.

Under the existing Medicaid drug rebate program, states are required to cover nearly all drugs from manufacturers that have signed rebate agreements. But they nonetheless restrict access — by establishing preferred drug lists and prior authorization rules, and by rigidly limiting the number of prescriptions a beneficiary can fill each month. These techniques would probably be used more and more under a per capita cap. And governors would dial up the pressure on Congress to loosen the requirement to cover all drugs — and allow states to ration them directly through highly restrictive or closed formularies based primarily on cost rather than value.

States have already become more aggressive in negotiating extra rebates from drugmakers, in addition to the federal Medicaid rebate. A new law in New York promises extra state scrutiny of profit margins and drug effectiveness for any company that doesn’t agree to sufficient rebates. If the Senate health-care bill becomes law, such measures would probably become more widespread, as states struggle to accommodate Medicaid drug costs.

The likely result of the legislation would thus be to push state governments to aggressively set prices and ration access to new drugs. To be sure, the U.S. needs to shift drug payments in a way that places more emphasis on value. But loading more risk and cost onto fiscally strapped state governments is not the way to do it. I wonder whether Republicans, who generally espouse less government interference in drug pricing, understand what forces their bill would set in motion.

Originally published at bloombergview.com on June 28, 2017.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Virtual Reality Can Conquer Real Pain

It’s a promising medical weapon to deploy in the opioid crisis.

Despite all efforts to combat the opioid epidemic, the crisis continues to destroy lives and contribute to the growing gap in life expectancy by income and education in the U.S. But it appears that some relief may come from an unexpected source: virtual reality. Anyone who thinks virtual reality is just a sideshow for gamers should pay close attention to the stunning results it’s achieving in the medical world.

A virtual reality game called SnowWorld — in which patients throw snowballs at snowmen while virtually immersed in a white, snow-covered environment — has been used for more than 20 years to relieve the pain experienced by burn victims, and it’s been surprisingly effective. As David Rhew, the chief medical officer at Samsung Electronics America, recently explained to me, the promising results from burn management have led to broader use of virtual reality in an array of medical settings, including the type of chronic pain that leads to opioid abuse.

In one trial at Cedars-Sinai Medical Center in Los Angeles involving 100 patients experiencing significant chronic pain, half the patients played a 15-minute virtual reality game called Pain RelieVR, in which the patient tries to shoot balls at moving objects in an immersive 360-degree environment. The other half were shown an ordinary video of relaxing nature scenes.

Sixty-five percent of the virtual reality patients experienced pain relief, compared with 40 percent in the control group, and the change among the game-players was more substantial. Virtual reality seems to do more than a two-dimensional movie to shift the brain’s experience in a way that helps patients handle pain.

To be sure, this study involved only a brief virtual reality experience, and it did not randomly assign the patients to each group. But other studies of virtual reality in chronic pain management are showing similar results. The conclusion of a review done several years ago remains true today: “Virtual reality has consistently been demonstrated to decrease pain, anxiety, unpleasantness, time spent thinking about pain and perceived time spent in a medical procedure.”

Perhaps the most remarkable medical results from virtual reality involve spinal cord injuries. In a small study of eight Brazilian patients who were paralyzed below the waist, researchersused virtual reality, a robotic suit and tactile limb feedback to train the subjects’ brains to develop alternative neural pathways to the affected limbs. After a year, all of them experienced some improvement, and half were upgraded from full lower-body paralysis to partial. (None of these patients were able to walk independently, but they were closer to being able to do so. One patient could move her legs by herself while supported by a harness.)

There’s some concern that virtual reality, if used to treat opioid addicts, might become the focus of new kind of addiction, but even so, it wouldn’t be as deadly as the very real one we currently face.

The use of virtual reality as a medical tool is in its infancy, and the results to date should be viewed as promising rather than definitive, especially given the exceedingly small sample sizes in studies so far. Nonetheless, there’s reason to be hopeful, since the results are fully consistent with the well-researched placebo effect in addressing pain, depression and other health problems.

The brain is remarkably powerful, perhaps even able to reawaken limbs that have been paralyzed for years. Virtual reality might be able to help channel that power in beneficial ways.

Originally published at bloombergview.com on June 13, 2017.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Health Care Is Reforming, Just Not in Washington

Business leaders see better value for the dollar before the end of the decade.

As lawmakers in Washington continue their debate over how to modify the U.S. health-insurance market, health-care investors and business leaders around the world need to see past the political drama and run their businesses with a view toward improving value in health care. If they succeed, it will make a bigger difference for the cost and quality of care — globally and for most Americans — than whatever action is taken by Congress.

We’ve just finished a study involving 300 senior health-care executives from leading companies in health-care services, pharmaceuticals, biotechnology and medical devices, along with top investors in the field. And it’s clear that they see big changes in the years ahead, driven largely by pricing pressure across the industry.

The pricing pressures, in turn, are expected to drive innovation. Interestingly, in the coming years, changes in how health-care payments are made are expected to be the most important form of innovation, though scientific breakthroughs will also play a critical role. What’s more, these leaders expect health-care companies to engage in new partnerships and collaborations — including with nontraditional competitors in the technology world, such as Google, IBM, Apple and Fitbit.

Most surprisingly, we found strong expectations that value-based payments for medical care will displace the traditional fee-for-service model, transforming the industry over the next five to ten years. Despite doubts after the recent presidential election that the movement away from fee-for-service would continue, more than half of American executives and four-fifths of American investors who responded to the survey after Nov. 8 said they believe the majority of U.S. health-care payments will be value-based before 2020 — that is, in less than three years, a stunning shift. And the industry still expects the government to lead the way; most respondents said the U.S. Centers for Medicare and Medicaid Services will drive the payment change, though many also see private health insurers playing an important role.

To be sure, there were differences among subsets of the industry. Pharmaceutical and biotech executives, for example, tended to be more skeptical about value-based payments, with more than 70 percent doubting they would prevail before 2020. These leaders clearly had other issues on their minds; they were the most worried about pricing pressure and political risks, especially in the U.S. Almost three-quarters of American pharma and biotech executives listed the “political environment” as one of the top three drivers of drug pricing pressure, for example, whereas only about 40 percent of European pharma/biotech executives did.

And while the 300 respondents broadly agreed that innovation through new health-care payment and delivery models and scientific breakthroughs can be expected in the years ahead, investors more so than executives also pointed to other forces, including improved diagnostics and personalized medicine, and more transparency in health-care pricing and quality.

Industry leaders also expect to see a lot of dynamism in health care. More than 40 percent of executives said new partnerships will help transform health care, including partnerships with tech companies and other nontraditional competitors. In fact, 80 percent of all respondents said nontraditional competitors will change the industry, either through new partnerships or other means.

Here again, people’s views varied depending on their particular business. About 30 percent of respondents in medical devices and health-care services said nontraditional players will transform the industry over the next few years, but only 14 percent of pharma and biotech respondents agreed. More drug and biotech leaders pointed to innovation in key therapeutic areas and scientific breakthroughs. Advances in oncology and central nervous system therapies are most needed medically, they said, and offer the greatest opportunity for innovation and growth. Gene editing, therapeutic vaccines and gene therapy top their list of disruptive technologies.

Against the backdrop of incessant political chatter over repealing and replacing Obamacare, we found an industry poised for dramatic transformation, led by innovation in payment models, science and technology, and supported by new competitors, new partnerships and other strategic transactions.

Our study, in turn, provides guideposts for both government and business leaders on the best path forward in delivering higher-value health care. The money we spend on medicines, for example, should increasingly reflect the higher-value innovations that executives and investors anticipate. And U.S. policymakers must satisfy widespread expectations that they will move toward value-based payments that reflect the benefits of investment in innovation.

Originally published at bloombergview.com on May 15, 2017.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

People Lie, But Search Data Tell the Truth

Looking to Google for a revolution in social science.


Seth Stephens-Davidowitz, a former research assistant of mine, would not strike most people as a revolutionary. Yet in his new book “Everybody Lies,” he argues persuasively for a mutiny in social science.

The problem should be familiar to anyone who’s followed political polling in the past few years, despite the successful predictions of Emmanuel Macron’s victory in France. Put simply, most people tend to lie on surveys and on social media, too. As a result, when we study people’s responses to surveys or what they say on social media, we come up with a misleading picture.

Rather than disparage surveys and social media posts, Stephens-Davidowitz points to a different way of understanding ourselves. In the ostensible privacy of online searching, he argues, we inadvertently reveal ourselves, and this digital truth serum offers the best way of finding out who we really are.

Examples abound. According to survey data, Americans overall are not particularly racist, and any racism that does exist is more dominant in the South — a view that is often endorsed by the media. Yet online searches reveal a remarkable number of racist inquiries by Americans, and these searches are in no way limited to the South. Indeed, the highest rates for racist searches are found in places such as upstate New York, eastern Ohio and western Pennsylvania. The true racism divide is not North-South, it turns out, but East-West, with limited racist search behavior west of the Mississippi River. This pattern correlates strongly with presidential election results; in the local areas with the highest share of racist online searches, Barack Obama substantially under-performed, and Donald Trump substantially over-performed.

Another example involves homosexuality. Survey data and social media profiles suggest the proportion of men who report being gay is roughly twice as high in Rhode Island as it is in Mississippi. Yet Google searches of terms associated with gay pornography vary little across the country, and are only marginally higher in Rhode Island than in Mississippi — suggesting that the survey results and social media profiles in some states may not reflect reality. Indeed, in the states where under-reporting may be larger, spouses tend to be more suspicious. The most searched-for term on Google after “Is my husband…” is not “cheating” or “depressed” but “gay,” and that question is asked far more frequently in states where the survey reports are low.

Many other myths are exploded in the book, some by search data and some by other evidence. The notion that violent movies cause violence? Not correct. The crime data show that violence declines before, during and after the showing of violent movies — perhaps because people who would be inclined to commit violence instead go to see the violent movie, and given the association between drinking and violence, the diversionary effect lingers because movie theaters generally don’t serve alcohol.

Another accepted idea, first offered by the historian James McPherson, is that the Civil War caused Americans to shift common usage from “the United States are” to “the United States is.” Nope again: A search of digitized books shows that there was no noticeable shift around the time of the war, and “the United States are” remained common for 15 or more years afterward.

Consider, next, the assumption that people start out liberal and become more conservative as they age. Again, not really. Instead, what seems to matter is an imprint effect that occurs when people are 18. Americans born in 1941, for example, turned 18 during Dwight Eisenhower’s presidency. And by about 10 percentage points, they have tended to be lifelong Republicans. A similar phenomenon applies to sports teams: A person’s favorite baseball team tends to be one that won the World Series during his or her childhood.

All of this would be merely amusing if it left us with only a collection of punctured myths. But Stephens-Davidowitz aims higher, writing that “Google searches are the most important dataset ever collected on the human psyche.” Therein lies the power of his new book: While acknowledging the limitations, Stephens-Davidowitz argues that big data can rescue social science from its garbage in-garbage out problem.

We are still early on this journey, but “Everybody Lies” provides the ballast to suggest it’s the right road.

Originally published at bloombergview.com on May 09, 2017.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

A Better Goal for Trump on Health Care

Forget about repealing Obamacare. Work instead on lowering medical costs and improving treatment.


Rather than renew their failed effort to repeal and replace Obamacare, President Donald Trump and congressional Republicans should move on to another aspect of health care: the need to contain costs and improve value.

Such a shift would allow them to be far more productive. For many if not most Americans, cost trends and value matter more than what’s happening on the individual insurance exchanges. Progress on this front would raise people’s take-home pay and improve the nation’s long-term fiscal balance, while also constraining the growth in premiums for those who buy insurance on the exchanges.

All the recent debate over the individual insurance market has made it easy to lose sense of the broader picture. In 2015, more than 155 million Americans received health insurance through an employer, and another 43 million, through Medicare, according to the Kaiser Family Foundation. Roughly 80 million more received coverage through Medicaid or the individual market — the areas where Obamacare expanded access — but even here, most of the coverage still reflects pre-Obamacare Medicaid. Consider that repealing Obamacare would reduce insurance coverage by about 30 million people in 2026, according to the Congressional Budget Office. While that’s a very large number, the population with coverage through other sources is many times greater, and these Americans still spend too much for too little on health care.

So what could the Trump team do to improve value? The way to start is by addressing the extreme variation in health costs across the U.S. Within Medicare, most of the variation reflects the amount of care provided — especially in post-acute care (the care a person receives after he or she leaves a hospital, including in skilled nursing facilities). Within the world of employer-provided insurance, in contrast, most of the variation reflects prices paid.

The accumulated evidence suggests that more care is not better, at least on average. That has been confirmed by clever research just published in the Journal of Health Economics, which analyzed how costs and outcomes vary depending on which ambulance company happens to pick up a particular patient. It turns out that ambulance companies tend to funnel patients to particular hospitals, so the rotation among ambulance companies provides an almost random rotation of patients to different hospital systems. The results show that there is little if any connection between overall spending and subsequent mortality rates. But they also show that higher in-hospital spending seems to be associated with better outcomes.

In contrast, higher levels of spending after patients leave the hospital (the part that drives variation in Medicare costs) is associated with lower-quality care.

These results light the path forward for President Trump: Find ways to lower prices in employer-provided insurance, and to reduce utilization (especially of post-acute care) in Medicare. In future columns, I will explore each of these paths in more detail.

This agenda would also enable Trump to involve Democrats, whom he will need as part of a new governing coalition to pass spending bills and a debt limit increase this year. After all, plenty of Democrats would rather find ways to deliver better-value health care than debate proposals to take people’s insurance coverage away.

Originally published at bloombergview.com on April 25, 2017.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.