2015, No. 2

Abstracts of Selected Recent NBER Working Papers

WP 21050
Joseph Doyle, John Graves, Jonathan Gruber
Uncovering Waste in U.S. Healthcare
There is widespread agreement that the U.S. healthcare system wastes as much as 5% of GDP, yet little consensus on what care is actually unproductive. This partly arises because of the endogeneity of patient choice of treatment location. This paper uses the effective random assignment of patients to ambulance companies to generate comparisons across similar patients treated at different hospitals. We find that assignment to hospitals whose patients receive large amounts of care over the three months following a health emergency do not have meaningfully better survival outcomes compared to hospitals whose patients receive less. Outcomes are related to different types of treatment intensity, however: patients assigned to hospitals with high levels of inpatient spending are more likely to survive to one year, while those assigned to hospitals with high levels of outpatient spending are less likely to do so. This adverse effect of outpatient spending is predominately driven by spending at skilled nursing facilities (SNF) following hospitalization. These results offer a new type of quality measure for hospitals based on utilization of SNFs. We find that patients quasi-randomized to hospitals with high rates of SNF discharge have poorer outcomes, as well as higher downstream spending once conditioning on initial hospital spending.

WP 21160
Saurabh Bhargava, George Loewenstein, Justin Sydnor
Do Individuals Make Sensible Health Insurance Decisions? Evidence from a Menu with Dominated Options
The recent expansion of health-plan choice has been touted as increasing competition and enabling people to choose plans that fit their needs. This study provides new evidence challenging these proposed benefits of expanded health-insurance choice. We examine health-insurance decisions of employees at a large U.S. firm where a new plan menu included a large share of financially dominated options. This menu offers a unique litmus test for evaluating choice quality since standard risk preferences and beliefs about one's health cannot rationalize enrollment into the dominated plans. We find that a majority of employees — and in particular, older workers, women, and low earners — chose dominated options, resulting in substantial excess spending. Most employees would have fared better had they instead been enrolled in the single actuarially-best plan. In follow-up hypothetical-choice experiments, we observe similar choices despite far simpler menus. We find these choices reflect a severe deficit in health insurance literacy and naïve considerations of health risk and price, rather than a sensible comparison of plan value. Our results challenge the standard practice of inferring risk attitudes and assessing welfare from insurance choices, and raise doubts whether recent health reforms will deliver their promised benefits.

WP 21168
John Beshears, James Choi, Joshua Hurwitz, David Laibson, Brigitte Madrian
Liquidity in Retirement Savings Systems: An International Comparison
What is the socially optimal level of liquidity in a retirement savings system? Liquid retirement savings are desirable because liquidity enables agents to flexibly respond to pre-retirement events that raise the marginal utility of consumption. On the other hand, pre-retirement liquidity is undesirable when it leads to under-saving arising from, for example, planning mistakes or self-control problems. This paper compares the liquidity that six developed economies have built into their employer-based defined contribution (DC) retirement savings systems. We find that all of them, with the sole exception of the United States, have made their DC systems overwhelmingly illiquid before age 55.

WP 21184
Michael Geruso, Dean Spears
Neighborhood Sanitation and Infant Mortality
Ending open defecation in the developing world has gained significant policy attention recently, motivated by the idea that private demand for latrines lies below the social optimum. We investigate the mortality externalities of poor sanitation by exploiting differences in latrine demand between Muslim and Hindu households in India: Muslims, despite being poorer, are 25 percentage points more likely than Hindus to use latrines or toilets. Instrumenting for local sanitation with the religious composition of neighborhoods, we estimate large infant mortality externalities. Our findings are informative of the external harm generated by the one billion people today who practice open defecation.

WP 21218
Janet Currie, W. Bentley MacLeod, Jessica Van Parys
Physician Practice Style and Patient Health Outcomes: The Case of Heart Attacks
When a patient arrives at the Emergency Room with acute myocardial infarction (AMI), doctors must quickly decide whether the patient should be treated with clot-busting drugs, or with invasiv's probability of conducting invasive surgery on the average patient, and the responsiveness of the physician’s choice of procedure to the patient's condition. We show that practice style is persistent over time and that physicians whose responsiveness deviates significantly from the norm in teaching hospitals have significantly worse patient outcomes, including a 7% higher probability of death in hospitals among the patients who are least appropriate for the procedure. Our results suggest that a reallocation of invasive procedures from less appropriate to more appropriate patients could improve patient outcomes without increasing costs. Developing protocols to identify more and less appropriate patients could be a first step towards realizing this improvement.

WP 21240
Prashant Bharadwaj, Mallesh Pai, Agne Suziedelyte
Mental Health Stigma
Comparing self-reports to administrative data records on diagnosis and prescription drug use, we find that survey respondents under-report mental health conditions 36% of the time when asked about diagnosis and about 20% of the time when asked about prescription drug use. Survey respondents are significantly less likely to under-report other conditions such as diabetes or hypertension. This behavior is consistent with a model in which mental health illnesses are stigmatized and agents have incentives to hide such traits from others. We show that differential under-reporting of depression is correlated with age, gender, and ethnicity and that these characteristics also predict a lower probability of mental health treatment, suggesting that stigma can play an important role in determining health-seeking behavior.

WP 21275
Jason Lindo, Analisa Packham
How Much Can Expanding Access to Long-Acting Reversible Contraceptives Reduce Teen Birth Rate?
Despite a near-continuous decline over the past 20 years, the teen birth rate in the United States continues to be higher than that of other developed countries. Given that over three- quarters of teen births are unintended at conception and that over a third of unplanned births are to women using contraception, many have advocated for promoting the use of long-acting reversible contraceptives (LARCs), which are more effective at preventing pregnancy than more commonly used contraceptives. In order to speak to the degree to which increasing access to LARCs can reduce teen birth rates, this paper analyzes the first large-scale policy intervention to promote and improve access to LARCs in the United States: Colorado's Family Planning Initiative. We estimate its effects using a difference-in-differences approach, comparing the changes in teen birth rates in Colorado counties with Title X clinics (which received funding) to the changes observed in other U.S. counties with Title X clinics. The results of this analysis indicate that the $23 million program reduced the teen birth rate by approximately 5% in the four years following its implementation, providing support for the notion that increasing access to LARCs is a mechanism through which policy can reduce teenage childbearing.

WP 21290
Craig Garthwaite, Tal Gross, Matthew Notowidigdo
Hospitals as Insurers of Last Resort
American hospitals are required to provide emergency medical care to the uninsured. We use previously confidential hospital financial data to study the resulting uncompensated care, medical care for which no payment is received. We use both panel-data methods and case studies from state-wide Medicaid disenrollments and find that the uncompensated care costs of hospitals increase in response to the size of the uninsured population. The results suggest that each additional uninsured person costs local hospitals $900 each year in uncompensated care. Similarly, the closure of a nearby hospital increases the uncompensated care costs of remaining hospitals. Increases in the uninsured population also lower hospital profit margins, which suggests that hospitals cannot simply pass along all increased costs onto privately insured patients. For-profit hospitals are less affected by these factors, suggesting that non-profit hospitals serve a unique role as part of the social insurance system.

WP 21326
Aspen Gorry, Devon Gorry, Sita Slavov
Does Retirement Improve Health and Life Satisfaction?
We utilize panel data from the Health and Retirement Study to investigate the impact of retirement on physical and mental health, life satisfaction, and health care utilization. Because poor health can induce retirement, we instrument for retirement using eligibility for Social Security and employer sponsored pensions and coverage by the Social Security earnings test. We find strong evidence that retirement improves both health and life satisfaction. While the impact on life satisfaction occurs within the first 4 years of retirement, many of the improvements in health show up 4 or more years later, consistent with the view that health is a stock that evolves slowly. We find little evidence that retirement influences health care utilization.

WP 21361
Pablo Celhay, Paul Gertler, Paula Giovagnoli, Christel Vermeersch
Long-Run Effects of Temporary Medical Care Productivity
The adoption of new clinical practice patterns by medical care providers is often challenging, even when they are believed to be both efficacious and profitable. This paper uses a randomized field experiment to examine the effects of temporary financial incentives paid to medical care clinics for the initiation of prenatal care in the first trimester of pregnancy. The rate of early initiation of prenatal care was 34% higher in the treatment group than in the control group while the incentives were being paid, and this effect persisted at least 24 months or more after the incentives ended. These results are consistent with a model where the incentives enable providers to address the fixed costs of overcoming organizational inertia in innovation, and suggest that temporary incentives may be effective at motivating improvements in long run provider performance at a substantially lower cost than permanent incentives.

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