Health Care

Members of the NBER's Health Care Program met in Cambridge December 7. Program Director Jonathan Gruber of MIT organized the meeting. These researchers' papers were presented and discussed:

Sebastián Fleitas, University of Leuven; Gautam Gowrisankaran, University of Arizona and NBER; and Anthony T. Lo Sasso, University of Illinois at Chicago

Reclassification Risk in the Small Group Health Insurance Market (NBER Working Paper No. 24663)

Fleitas, Gowrisankaran, and Lo Sasso evaluate reclassification risk and adverse selection in the small group insurance market from a period before ACA community rating regulations. Using detailed individual-level data from a large insurer, they find a pass through of 5-43% from expected health risk to premiums. This limited reclassification risk cannot be explained by market power or search frictions but may be due to implicit long-term contracts. The researchers find no evidence of adverse selection generated by reclassification risk. The observed pricing policy adds $2,346 annually in consumer welfare over 10 years relative to experience rating. Community rating would not increase consumer welfare substantially.

Amanda E. Kowalski, University of Michigan and NBER

Behavior within a Clinical Trial and Implications for Mammography Guidelines (NBER Working Paper No. 25049)

Kowalski unites the medical and economics literatures by examining relationships between biology and behavior in a clinical trial. Specifically, Kowalski identifies relationships between mortality and mammogram receipt using data from the Canadian National Breast Screening Study, an influential clinical trial on mammograms. She finds two important relationships. First, she finds heterogeneous selection into mammogram receipt: women more likely to receive mammograms are healthier. This relationship follows from a marginal treatment effect (MTE) model that assumes no more than the local average treatment effect (LATE) assumptions. Second, Kowalski finds treatment effect heterogeneity along the mammogram receipt margin: women more likely to receive mammograms are more likely to be harmed by them. This relationship follows from an ancillary assumption that builds on the first relationship. The findings contribute to the literature concerned about harms from mammography by demonstrating variation across the mammogram receipt margin. This variation poses a challenge for current mammography guidelines for women in their 40s, which unintentionally encourage more mammograms for healthier women who are more likely to be harmed by them.

Maria Polyakova, Stanford University and NBER, and Stephen P. Ryan, Washington University in St. Louis and NBER

In-kind Transfers, Tagging, and Market Power: Evidence from the ACA

Public welfare programs have a long history of linking their benefits to observable characteristics of potential recipients, such as age, income, or employment status. Polyakova and Ryan argue that this common mechanism, tagging, whose goal it is to improve efficiency with better targeting of subsidy funds, may lead to substantial market distortions in an environment where public insurance is provided by strategic private firms and the level of subsidies is anchored to the price information supplied by these firms. The researchers explore this possibility empirically, using data on Health Insurance Marketplaces that were created in 2014 under the Affordable Care Act. They build a model of supply and demand in this new market. The estimated model primitives allow us to analyze the efficiency of market equilibria and the incidence of subsidies under the observed subsidy regime with tagging, as well as under counterfactual subsidization mechanisms.

Manasi Deshpande, University of Chicago and NBER; Tal Gross, Boston University and NBER; and Yalun Su, University of Chicago

Disability and Distress: The Effect of Disability Programs on Financial Outcomes

Deshpande, Gross, and Su provide the first evidence on the relationship between disability programs and markers of financial distress: eviction, foreclosure, bankruptcy, and home transactions. They document that rates of adverse financial events peak around the time of disability application and subsequently fall for both allowed and denied applicants. To estimate the causal effect of disability programs on these outcomes, the researchers use an age-based eligibility rule to implement a regression discontinuity design. Deshpande, Gross, and Su find that disability allowance at the initial level reduces the likelihood of foreclosure by 2.8 percentage points (54 percent) and home sale by 2.6 percentage points (20 percent) among homeowners over the next 3 years. The likelihood of bankruptcy falls by 0.76 percentage points (29 percent) over the next 3 years. They present evidence that liquidity is the most likely channel for these effects, meaning that the results reflect a reduction in financial distress and an improvement in welfare.

Michael Geruso, University of Texas at Austin and NBER; Timothy Layton and Mark Shepard, Harvard University and NBER; and Grace McCormack, Harvard University

Trade-offs between Extensive and Intensive Margin Selection in Competitive Insurance Markets

Insurance markets often feature consumer sorting along both an extensive margin (whether to buy) and an intensive margin (which plan to buy), but most research considers just one or the other margin in isolation. Geruso, Layton, McCormack, and Shepard present a graphical framework that incorporates both selection margins and allows us to illustrate the often surprising equilibrium and welfare implications that arise. A key finding is that standard policies often involve a tradeoff between ameliorating intensive and extensive margin adverse selection. A stronger insurance mandate (which reduces rates of uninsurance) tends to worsen intensive margin unravelling because the newly insured are healthier and sort into less generous plans. Risk adjustment, intended to ameliorate selection against generous plans, can either increase or decrease uninsurance, depending on the degree of adverse selection. The researchers show that it is straightforward to apply their graphical framework empirically, using demand and cost curves estimated from the Massachusetts Connector. The researchers' empirical illustration highlights the importance of considering both selection margins jointly for thinking through tradeoffs inherent to policies commonly used to combat adverse selection.

Martin B. Hackmann, University of California, Los Angeles and NBER, and Vincent Pohl, University of Georgia

Patient vs. Provider Incentives in Long Term Care (NBER Working Paper No. 25178)

How do patient and provider incentives affect mode and cost of long-term care? Hackmann and Pohl's analysis of 1 million nursing home stays yields three main insights: First, Medicaid-covered residents prolong their stays instead of transitioning to community-based care due to limited cost-sharing. Second, nursing homes shorten Medicaid stays when capacity binds to admit more profitable out-of-pocket payers. Third, providers react more elastically to financial incentives than patients, so moving to episode-based provider reimbursement is more effective in shortening Medicaid stays than increasing resident cost-sharing. Moreover, the researchers do not find evidence for health improvements due to longer stays for marginal Medicaid beneficiaries.

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