Health Care Program Meeting

March 8 and 9, 2012
Jonathan Gruber of MIT, Organizer

Charles J. Courtemanche, University of Louisville and NBER, and Daniela Zapata, University of North Carolina at Greensboro

Does Universal Coverage Improve Health? The Massachusetts Experience (NBER Working Paper No. 17893)

Massachusetts passed health care reform legislation designed to achieve nearly universal coverage through a combination of insurance market reforms, mandates, and subsidies that later served as the model for national health care reform. Using individual-level data from the Behavioral Risk Factor Surveillance System, Courtemanche and Zapata provide evidence that health care reform in Massachusetts led to better overall self-assessed health. An assortment of robustness checks and placebo tests support a causal interpretation of the results. The authors also document improvements in several determinants of overall health, including physical health, mental health, functional limitations, joint disorders, body mass index, and moderate physical activity. The health effects were strongest among women, minorities, near-elderly adults, and those with incomes low enough to qualify for the law's subsidies. Finally, they use the reform to instrument for health insurance and estimate a sizeable impact of coverage on health. The effects on coverage were strongest for men, non-black minorities, young adults, and those who qualified for the subsidies, while the effects of coverage were strongest for women, blacks, the near-elderly, and middle-to-upper income individuals.

Subramaniam Ramanarayanan and Jason Snyder, University of California at Los Angeles

Reputations and Firm Performance: Evidence from the Dialysis Industry

Ramanarayanan and Snyder study the impact of information disclosure policies on firm performance. They exploit a policy change that quasi-randomly assigns reputations to firms based on their allocation to rough performance categories. Dialysis firms are graded on performance by Medicare using three categories related to patient survival rates: better than expected; as expected; and worse than expected. They exploit the underlying continuous performance measures used to create these categories to implement a regression discontinuity design. They find that firms that are graded as performing worse than expected subsequently experience a reduction in patient mortality rates through a mix of improved patient care and strategic patient selection. Those firms also treat fewer informed patients. There are no comparable effects for firms that are randomly assigned to the better-than-expected grade. The overall evidence is consistent with disappointing information being a significant motivator of firm behavior.

Amanda Starc, University of Pennsylvania

Insurer Pricing and Consumer Welfare: Evidence from Medigap

While adverse selection is often blamed for inefficiently high insurance premiums, imperfect competition is also a pervasive feature of many health insurance markets. In Medicare Supplement Insurance (Medigap), two firms control nearly three-fourths of the market, and premiums exceed claims by 30 percent. Starc finds that while adverse selection can restrain markups, low price elasticity and consumers' brand preferences create incentives for firms to engage in substantial marketing and to price above cost. She concludes that the strategic behavior of insurers facing relatively inelastic demand is critical in explaining poor market performance and loss of consumer surplus, and further finds that insurers do not capture all of the rents in this market.

Vivian Y. Wu, University of Southern California, and Yu-Chu Shen, Naval Postgraduate School and NBER

The Long-term Impact of Medicare Payment Reductions on Patient Outcomes (NBER Working Paper No. 16859)

Wu and Shen examine the long-term effect of Medicare payment reductions that were a result of the Balance Budget Act (BBA) of 1997 on patient outcomes. The authors classify hospitals into small, moderate, and large cuts categories and then examine outcomes throughout 1995-7 (pre-BBA), 1998-2000 (initial-BBA), and 2001-5 (post-BBA). They find that mortality trends remain similar across hospitals during the first two periods. Mortality trend diverged in 2001-5: hospitals facing large payment cuts experienced increased mortality rates relative to hospitals facing small cuts. These results are partly explained by reduced staffing and operating costs following BBA in the large cut hospitals.

Jason Abaluck, MIT, and Jonathan Gruber, MIT and NBER

Dynamics of Plan Choice in Medicare Part D

Beginning with Medicare Part D and continuing with the Affordable Care Act, public health insurance is evolving towards new delivery mechanisms in which choice plays a central role. In their paper, Abaluck and Gruber evaluate the choices of elders enrolled in Medicare Part D using a 20 percent sample of the entire universe of Part D claims data from 2006-8. With this more complete sample, they replicate earlier work and find that elders are choosing plans that are not on the efficient portfolio of plan choice, in the sense that an alternative plan offers better risk protection at a lower cost. They then estimate a structural model of plan choice which allows them to compute a welfare metric that takes into account risk protection and plan quality. This metric suggests that consumers could improve welfare by hundreds of dollars in all years if they switched to an alternate plan. They use this structural model to decompose the change in welfare over time into demand-side factors, such as learning from experience, cohort learning as the market evolves, and inertia, and supply-side factors, such as premiums, out-of-pocket costs, and which plans are available. They find that over time foregone welfare tends to decrease because of cohort learning and increase because of inertia and increasing premiums.

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