Benjamin Handel
Appearances
Freakonomics Radio
628. Sludge, Part 2: Is Government the Problem, or the Solution?
You could try to allow private firms to develop solutions. AI tools to help basically mine the insurance contract and then allow that to interact with consumer data in order to create this almost super decision maker.
Freakonomics Radio
628. Sludge, Part 2: Is Government the Problem, or the Solution?
You could go even further and require some listing of availability of these doctors, because a lot of times there's what's called ghost networks where the provider is listed, but they have no availability. And they're listed. Why? Just to make it seem like there's better or more choice? Exactly. That is especially prevalent in the mental health space.
Freakonomics Radio
628. Sludge, Part 2: Is Government the Problem, or the Solution?
This is almost like a crisis level at this point where therapists have essentially no availability. Your insurer might list 55 of them and maybe two of them will actually have room. There's a second thing, which is I just kind of made this statement. Oh, we're going to integrate consumers' data. This is something I've been talking about for like... 10 years.
Freakonomics Radio
628. Sludge, Part 2: Is Government the Problem, or the Solution?
This is really, for some reason, really hard. Is this because of privacy concerns? Is that the main barrier? That is one of the key barriers. However... It's a surmountable barrier, I believe, but it takes some minimal degree of cleverness that somehow is a little too high for policymakers and the healthcare system.
Freakonomics Radio
628. Sludge, Part 2: Is Government the Problem, or the Solution?
I am sympathetic to this a little bit. It's not trivial. You'd basically have to find a way to anonymize the data in a way that really works. Right now, medical privacy law, HIPAA, which is the Health Insurance Portability and Accountability Act, that is a good law that's designed to essentially say you can't have this kind of information in data that you're passing around.
Freakonomics Radio
628. Sludge, Part 2: Is Government the Problem, or the Solution?
The problem is that the regulation, it's based on a crude foundation. The foundation is like, well... We're setting this up so that the likelihood that someone's identified is very low. The problem is that if you just follow HIPAA and you have a huge healthcare claims data set, there are versions of that where, yeah, you could still identify a decent number of people.
Freakonomics Radio
628. Sludge, Part 2: Is Government the Problem, or the Solution?
And that would be politically bad. It would be probably bad for people personally. So the challenge is that you have to set up a system where the data have to be securely transmitted in a way that allows individuals to be identified in the data, because the whole value in integrating the data is the individual specificity. So if you don't have that, it won't work.
Freakonomics Radio
628. Sludge, Part 2: Is Government the Problem, or the Solution?
But if you have that, then you're risking violating HIPAA. Exactly. It's kind of a regulatory problem. You basically want to have a firm or intermediary that hosts this privatized data. anonymized so that an individual can go there and opt in and say, hey, I want you to use my privatized data. I want you to use that and tell me which plan is the best one financially, which one covers my doctors.
Freakonomics Radio
628. Sludge, Part 2: Is Government the Problem, or the Solution?
If I have a need in this space, mental health, for example, and I check this box, are there two doctors available or 50 doctors available? You see many industries where you Lots of consumer data is being used. Basically every online sector, including very private data, right, that's being used to make recommendations. This is possible to do. That's the way to say it.
Freakonomics Radio
628. Sludge, Part 2: Is Government the Problem, or the Solution?
Somehow in the places where there is vast money to be made in social media and online retail, no problem. In the health space, there's not really money to be made.
Freakonomics Radio
627. Sludge, Part 1: The World Is Drowning in It
And it's very complicated for the insurer to say this is what the price is going to be for this service because the provider might do six things and they don't know which six things they're going to do. Now let's think about the cost, your other question, for the overall system. This is also complicated because
Freakonomics Radio
627. Sludge, Part 1: The World Is Drowning in It
And the reason it's complicated is that it relates very closely to just how do you design a health system overall? The reason is that unlike many products like retail products on Amazon or whatever, healthcare system and healthcare system design, they're set up to ration care. What do you mean by ration? So most products, consumers have money. And they either buy them or they don't.
Freakonomics Radio
627. Sludge, Part 1: The World Is Drowning in It
And then Econ 101 applies, supply, demand, etc. In health care, there's a whole host of other issues, and those issues are caused by the fact that as a society, we don't want to make people pay for all of their own health care. Say someone has a serious disease, going to cost $80,000, and that person has no money. We want them to get care, but we don't want them to pay for it.
Freakonomics Radio
627. Sludge, Part 1: The World Is Drowning in It
That means we're in a world where price rationing doesn't work. And so then all healthcare systems around the world and in different settings in the U.S., they're set up with some basket of rationing policies, some basket of policies that say, we're not going to give you everything you want, and we're going to have to have some mechanism to figure out what you get and what you don't get.
Freakonomics Radio
627. Sludge, Part 1: The World Is Drowning in It
Almost every other market, that's prices. Amazon is going to charge you $65 for something. You either buy it or you don't. Healthcare, that doesn't work because we say we're going to charge you $80,000 and the person says, well, I'm insured. I'm not paying this.
Freakonomics Radio
627. Sludge, Part 1: The World Is Drowning in It
I think it's closely related. Take a system like the UK, where there's nationalized healthcare. What are the rationing policies there? How are they limiting care so that people aren't just consuming everything they want? Time. They have time. They make you wait in line. And then they also have an institute called NICE, the National Institute for Clinical Excellence.
Freakonomics Radio
627. Sludge, Part 1: The World Is Drowning in It
And there they just crunch numbers, cost-benefit, and they say, as a national health system, we're going to cover this thing and not this thing. The U.S. has a privatized system, as you mentioned, much more privatized. What that means is that while there's some regulation in the U.S., the onus is really on insurers, UnitedHealthcare, Aetna, Humana, Blue Cross.
Freakonomics Radio
627. Sludge, Part 1: The World Is Drowning in It
The onus is on the insurers to form that basket of rationing policies. What that means is that instead of having some kind of centralized national way, you're rationing health care. Your insurance company is saying, OK, we have to ration health care in some way. If we don't ration health care, our premiums are going to be sky high.
Freakonomics Radio
627. Sludge, Part 1: The World Is Drowning in It
Nobody's going to choose our plans and we're going to go out of business. So are you saying health care is rationed by sludgy complication? Yes, exactly. So not unintentional. No, not unintentional. And in fact, this is common. The difference is that in systems around the world, Canada, the UK, etc., there's intentional sludge, but I would call it organized sludge.
Freakonomics Radio
627. Sludge, Part 1: The World Is Drowning in It
In the U.S., say you're with United, you go look at the provider network list and And you look for specialists. You call 52 specialists who have no availability. And then on number 53, they say, yeah, we'll see you in like three and a half months. And then United says, okay, but you have to do prior authorization from your primary care doctor before you can see this specialist.
Freakonomics Radio
627. Sludge, Part 1: The World Is Drowning in It
You didn't know that. In the U.S., it's just more disorganized. But the principle is the same. The principle is that... We can't give you everything you want because of saving money. We don't want the percentage of GDP of health care to be 52 percent. I mean, it's already double any other country, right? Yes, that's correct. About 20 percent right now.
Freakonomics Radio
627. Sludge, Part 1: The World Is Drowning in It
And most Western countries, 12 or 11 may be the high end of the next wave of These companies, they all have to find a way to ration when you pick the plan. It's not transparent at all, right? You're not going to read page 97 in the booklet about this is what we do for prior authorization.
Freakonomics Radio
627. Sludge, Part 1: The World Is Drowning in It
You're a consumer, you see a basket of health plans that you're choosing, and you see one is a lot cheaper than the other one. And you think, well, I'm pretty healthy, and I don't have a ton of money, so this looks better, right? Then after the fact, you actually go to get care, and you experience this whole gamut of sludge.
Freakonomics Radio
627. Sludge, Part 1: The World Is Drowning in It
Okay, this is going to be kind of a funny answer. Let me just first say up front, I don't know the answer to this question. However, I think it's equally plausible that sludge lowers spending, probably more plausible that it lowers spending, because the whole point of the sludge is to do less healthcare.
Freakonomics Radio
627. Sludge, Part 1: The World Is Drowning in It
And so actually insurers with the sludge and all of these rationing mechanisms, they're probably contributing to lower costs, even though we don't necessarily like that experience.
Freakonomics Radio
627. Sludge, Part 1: The World Is Drowning in It
It's a data set for one large employer with about 10,000 employees offering a menu of insurance options and basically had data on every medical claim, every interaction with a doctor. I could observe the menu of options, the premiums people were paying. I got really into the nitty-gritty details, and then I collected that up into studying insurance choice in a behavioral sense.
Freakonomics Radio
627. Sludge, Part 1: The World Is Drowning in It
Insurance choice meaning picking your plan, correct? Exactly. Picking your plan. I was looking at the data, and I said, wow. Some of these consumers are making just terrible choices.
Freakonomics Radio
627. Sludge, Part 1: The World Is Drowning in It
What I showed there is that people were losing at least $1,000 by choosing one option versus the other. And these were often poorer people earning less than $40,000 a year.
Freakonomics Radio
627. Sludge, Part 1: The World Is Drowning in It
There's a combination of factors. The answer I usually give is that the firms don't know they're offering a dominated option. Since I wrote that paper, there have been a couple studies that one by Justin Sidnor, who's at the University of Wisconsin. And what he found was that this was happening because of the way firms update their premiums according to algorithms. But in a naive way.
Freakonomics Radio
627. Sludge, Part 1: The World Is Drowning in It
So they're not trying to offer these dominated plans. In fact, offering them often works against the goals of the firm. The goals both financial for them and providing good care for their employees.
Freakonomics Radio
627. Sludge, Part 1: The World Is Drowning in It
I think that's broadly accurate. Yes. But the smaller the firm. The smaller operation you have in HR, the more likely you are to be offering a menu like this.
Freakonomics Radio
627. Sludge, Part 1: The World Is Drowning in It
Yeah, that's a good question. I think it's typically more the fault of the employer. And the reason is that they're often bringing together plans from different insurers. And if they're bringing in plans from the same health care insurer, they're often giving differential subsidies to those plans based on how much of the premiums they want to cover for employees.
Freakonomics Radio
627. Sludge, Part 1: The World Is Drowning in It
It's kind of in the middle. The way I would describe it is that the premium, which is how much you're being charged for the whole year, for example, just to be in this health plan, that's something people understand well. Because it's a fixed price. You can figure it out. Yeah, exactly. The more complicated part that consumers often struggle with is all the stuff that happens after that.
Freakonomics Radio
627. Sludge, Part 1: The World Is Drowning in It
So what's the deductible? What's the cost sharing? What's the co-insurance rate? In fact, my co-authors and I, we've run surveys and tied it to the choices people make. And I mean, just to be honest, people basically don't understand these terms. One nice example, we're studying a firm that offers two health plans. So it's simple, just two options. One of the options is labeled as more generous.
Freakonomics Radio
627. Sludge, Part 1: The World Is Drowning in It
and one is labeled as less generous. And that's true for these options financially. However, both options give access to exactly the same doctors, okay? So we ask consumers, hey, do you think that the more generous option gives you access to more doctors? About 40% of people say yes,
Freakonomics Radio
627. Sludge, Part 1: The World Is Drowning in It
And what we find using the actual purchase data is that conditional on health risks or how healthy they are, those people who think that the more generous plan gives them access to more doctors are willing to pay $2,000 more per year for that plan. That gives you a sense of this uncertainty, right? That's something that's not real. $2,000 gone, but people don't know.
Freakonomics Radio
627. Sludge, Part 1: The World Is Drowning in It
And the reason is that it's very hard to get certainty on this dimension.
Freakonomics Radio
627. Sludge, Part 1: The World Is Drowning in It
Yes, exactly. That's very common. We talked about the sludge that insurers impose on patients, right? We haven't talked yet about the relationship between insurers and doctors and insurers and providers.
Freakonomics Radio
627. Sludge, Part 1: The World Is Drowning in It
In fact, insurers routinely make the case that they're the only thing holding us back from health care spending being 30 percent of GDP because they're the ones bargaining with doctors and trying to get lower prices. What's the sludge there, though, between providers and health care firms? So with what I was just talking about with the bargaining, I don't think that that's a sludge area.
Freakonomics Radio
627. Sludge, Part 1: The World Is Drowning in It
But there is a whole important sludge area, which comes from the rationing restrictions insurers impose that doctors have to mediate and contend with. So let me give you an example. Say an insurer denies care for something and then the physician has to haggle with the insurer to get any money from this payment because the provider is often not going to make the patient pay.
Freakonomics Radio
627. Sludge, Part 1: The World Is Drowning in It
Essentially, what the insurer does is they impose all of these administrative burdens on the doctor's paperwork, back and forth with the insurer. And this paperwork is all designed to discourage care, or as the insurer would say, encourage appropriate care. One of the things that we've seen in the past five to 10 years is physicians becoming completely fed up dealing with insurers.
Freakonomics Radio
627. Sludge, Part 1: The World Is Drowning in It
There's a recent article in the American Journal of Managed Care that the survey is like 500 physicians and it basically shows 94% of physicians say these administrative issues are a huge burden. 64% say they've experienced burnout in part because of these administrative frictions and that they might want to leave becoming a doctor.
Freakonomics Radio
627. Sludge, Part 1: The World Is Drowning in It
And what this has led to is the last five to 10 years, insurers and venture capitalists have just been hoovering up all the smaller doctor practices. And so now it's almost... I won't say impossible, but it's extremely hard in the U.S. to be a small, independent physician practice.
Freakonomics Radio
627. Sludge, Part 1: The World Is Drowning in It
You almost have to be part of a big company, whether that's a big corporate physician group or an insurer-led physician group. And the reason is you need someone to take some of this administrative burden off of you. You need someone to process your sludge. Exactly. And if you don't have that, you're not a doctor. You're a sludge processor.
Freakonomics Radio
627. Sludge, Part 1: The World Is Drowning in It
Do what Thaler says. So I made that call. My name is Ben Handel. I'm an economics professor at UC Berkeley, working in the areas of healthcare economics, industrial organization, and behavioral economics. I asked Handel to start us off with an example of what he thinks of as healthcare sludge. One example is, can you find which doctors are actually covered by your health plan?
Freakonomics Radio
627. Sludge, Part 1: The World Is Drowning in It
Let's say you are going to look for a doctor on the insurer's website. A lot of times the provider database, it's not organized. It's not updated. You have no idea if there's a waiting list for any doctor. So if you just go down the list, you might have to call 25 doctors.
Freakonomics Radio
627. Sludge, Part 1: The World Is Drowning in It
Yeah, I think you frame this really well because those are the two dimensions I think about here. And I think it's actually very hard to identify between them. The two dimensions are, is the firm actively trying to make it harder for consumers and Which is plausible. And then the second dimension is, are they just doing a bad job because they're not motivated?
Freakonomics Radio
627. Sludge, Part 1: The World Is Drowning in It
Take UnitedHealthcare or some huge insurer, right? This is the fifth or sixth biggest company in America. Huge amounts of resources. And they're selling a major product to consumers. Now, compare your experience looking for doctors in the network to to the experience of shopping on amazon.com.
Freakonomics Radio
627. Sludge, Part 1: The World Is Drowning in It
Amazon, Target, all these retail companies, everything is designed to help you make your purchase as easily and quickly as possible. It's almost seamless. Sometimes you don't even know you're buying stuff or my kids are buying stuff and I don't know it. You look at the healthcare firm, there's none of that. It's the exact opposite. It's like a website from 20 years ago. It's super clunky.
Freakonomics Radio
627. Sludge, Part 1: The World Is Drowning in It
You're not getting the information you want. Are they actively making the website that way? No, I don't think you would look back in time and say they actively made it worse. However, they're also not using the obvious tools available that other firms in other spaces are using to make the experience better.
Freakonomics Radio
627. Sludge, Part 1: The World Is Drowning in It
Let me start with your contention that it's a lot more complicated. You're going to tell me how complicated paperclips are. No, I'm not. I'm not. It is a lot more complicated. The health care insurer is providing different things. Let's take the list of provider networks. That's easy. That's just as easy as Amazon listing products. Because they're not providing care.
Freakonomics Radio
627. Sludge, Part 1: The World Is Drowning in It
They're providing a list of people who provide care. It's just a list. It's a list of saying, we allow this. And they have to know the answer to that question because they're going to cover it or not. If you take another step and you said, OK... Now we want to know the prices. Then I agree with you. Then healthcare providers are often not going to really quote prices.