Abstracts of Selected Recent NBER Working Papers

NBER Working Paper 12595
Kosali I. Simon, Claudio Lucarelli
What Drove First-Year Premiums in Stand-Alone Prescription Drug Insurance?

Medicare's Part D offers heavily subsidized new drug coverage to 22.5 million seniors to date, of whom 16.5 million are in stand-alone drug plans (Department of Health and Human Services, 2006). The government delegated the delivery of the benefit to private insurance companies arguing that market incentives would lead them to provide coverage at the lowest price possible. The massive entry of plans and the large variety of actuarial designs and formularies offered make it complicated to assess how insurers set premiums during this first year of the program. This paper presents the first econometric evidence on whether premiums in the stand-alone drug plan markets are driven by the relevant factors predicted by insurance theory. Using data gathered from the Centers for Medicare and Medicaid Ser-vices, we measure a plan's generosity as the simulated out of pocket payments for different sets of drugs. We also identify the listed full drug prices by each insurer and merge these with other plan and geographical characteristics to test predictions about how insurers set premiums. We find evidence that a) the number of insurers in a market is big enough such that it does not appear to influence premiums, b) the full drug prices listed appear to be reflected to some degree in the premiums charged c) plan characteristics such as the provision of extra coverage are reflected in higher premiums, but overall there is a weak relationship between premiums and simulated out of pocket payments for different sets of drugs d) the institutional setting and regional market characteristics affect the firms' bidding behavior and their resulting premiums. Insurers appear to have responded strongly to program incentives such as the automatic enrollment of dual Medicaid-Medicare beneficiaries into low cost plans. As data for 2007 are made available, it will be important to see if plans follow similar pricing strategies in subsequent years of this program.

NBER Working Paper 12621
David E. Bloom, David Canning, Rick Mansfield, Michael Moore
Demographic Change, Social Security Systems, and Savings

In theory, improvements in healthy life expectancy should generate increases in the average age of retirement, with little effect on sav-ings rates. In many countries, however, retirement incentives in social security programs prevent retirement ages from keeping pace with changes in life expectancy, leading to an increased need for life-cycle savings. Analyzing a cross-country panel of macroeconomic data, we find that increased longevity raises aggregate savings rates in countries with universal pension coverage and retirement incentives, though the effect disappears in countries with pay-as-you-go systems and high replacement rates.

NBER Working Paper 12623
Christopher C. Afendulis, Daniel P.Kessler
Tradeoffs from Integrating Diagnosis and Treatment in Markets for Health Care

What are the important tradeoffs in consulting a single expert for both diagnosis and treatment? On one hand, an integrated diagnosti-cian may have the incentive to recommend treatments that are not in the buyer's best interests. On the other hand, joint production of diagnosis and treatment by an integrated diagnostician may be more efficient. We examine an important special case of this problem: the costs and health outcomes of elderly Medicare beneficiaries with coronary artery disease. We compare the empirical consequences of diagnosis by an "integrated" cardiologist - one who can provide surgical treatmen - to the consequences of diagnosis by a non-integrated cardiologist. Diagnosis by an integrated cardiologist leads, on net, to higher health spending but similar health outcomes. The net effect contains three components: reduced spending and improved outcomes from better allocation of patients to surgical treatment options; increased spending conditional on treatment option; and worse outcomes from poorer provision of non-surgical care. We con-clude that accounting more completely for doctors' incentives to refer patients in setting reimbursements, or in the alternative, allowing doctors more freedom to make and receive payments for referrals, could reduce spending and improve quality.

NBER Working Paper 12642
Marianne Bitler, Hilary W. Hoynes
Welfare Reform and Indirect Impacts on Health

The stated goals of welfare reform are to increase work, reduce dependency on welfare, reduce births outside marriage, and to in-crease the formation of two parent families. However, welfare reform may also have indirect impacts on health. We provide a compre-hensive review of the literature on the impacts of welfare reform on health. We illustrate the main findings from the literature by presenting estimates of the impact of reform on health insurance, health utilization, and health status using data from five state waiver experiments. The most consistent finding is that welfare reform led to a reduction in health insurance coverage. The impacts on health care utilization and health status tend to be more mixed and fewer are statistically significant. While the results are not conclusive, they suggest that wel-fare-to-work programs need not have large negative health effects.

NBER Working Paper 12643
Richard G. Frank, Thomas G. McGuire, Sharon-Lise Normand
Cost-Offsets of New Medications for Treatment of Schizophrenia

Broad claims are frequently made that new medications will offset all or part of their costs by reducing other areas of Medicaid spending. In this paper we examine the net impact on spending for new drugs used to treat schizophrenia. We extend research in this area by tak-ing a new approach to identification of spending impacts of new drugs. We specify and estimate models of spending on treatment of schizophrenia using 7 years of Florida Medicaid data. The estimates indicate that use of the new drugs result in net spending increases. This may be due to increased adherence to treatment.

NBER Working Paper 12659
John Beshears, James J. Choi, David Laibson, Brigitte C.Madrian
Simplification and Saving

Many financial decisions that individuals face are complicated and daunting for those who are not financial experts. One important con-sequence of this complexity is that individuals procrastinate in making these decisions. In this paper, we evaluate a low-cost intervention designed to simplify the retirement saving decision. Individuals received the opportunity to enroll in their workplace savings plan at a pre-selected contribution rate and asset allocation. By collapsing a multidimensional set of options into a binary choice between the status quo and the pre-selected alternative, this intervention increases participation rates by 10 to 20 percentage points among affected em-ployees. We find that similar mechanisms can be used to increase contribution rates among employees who are already participating.

NBER Working Paper 12674
James Banks, Michael Marmot, Zoe Oldfield, James P. Smith
The SES Health Gradient on Both Sides of the Atlantic

Looking across many diseases, average health among mature men is much worse in America compared to England. Second, there exists a steep negative health gradient for men in both countries where men at the bottom of the economic hierarchy are in much worse health than those at the top. This health gradient exists whether education, income, or financial wealth is used as the marker of one's SES status. These conclusions are maintained even after controlling for a standard set of behavioral risk factors such as smoking, drink-ing, and obesity and are equally true using either biological measures of disease or individual self-reports. In contrast to these disease based measures, health of American men appears to be superior to the health of English men when self-reported general health status is used. The contradiction most likely stems instead from different thresholds used by Americans and English when evaluating health status on subjective scales. For the same "objective" health status, Americans are much more likely to say that their health is good than are the English. Finally, feedbacks from new health events to household income are one of the reasons that underlie the strength of the income gradient with health in England.

NBER Working Paper 12680
Michael D. Hurd, Susann Rohwedder
Economic Well-Being at Older Ages: Income- and Consumption-Based Poverty Measures in the HRS

According to economic theory, well-being or utility depends on consumption. However, at the household level, total consumption is rarely measured because its collection requires a great deal of survey time. As a result income has been widely used to assess economic well-being and poverty rates. Yet, because households can use wealth to consume more than income, an income-based measure of well-being could yield misleading results for many households, especially at older ages. We use data from the Health and Retirement Study to find income-based poverty rates which we compare with poverty rates as measured in the Current Population Survey. We use HRS consumption data to calculate a consumption-based poverty rate and study the relationship between income-based and consump-tion-based poverty measures. We find that the poverty rate based on consumption is lower than the income-based poverty rate. Particu-larly noteworthy is the much lower rate among the oldest single persons such as widows. The explanation for the difference is the ability to consume out of wealth.

NBER Working Paper 12689
Joshua S. Graff Zivin, Harsha Thirumurthy, Markus Goldstein
AIDS Treatment and Intrahousehold Resource Allocations: Children's Nutrition and Schooling in Kenya

The provision of life-saving antiretroviral (ARV) treatment has emerged as a key component of the global response to HIV/AIDS, but very little is known about the impact of this intervention on the welfare of children in the households of treated persons. We estimate the impact of ARV treatment on children's schooling and nutrition outcomes using longitudinal household survey data collected in collabora-tion with a treatment program in western Kenya. We find that children's weekly hours of school attendance increase by over 20 percent within six months after treatment is initiated for the adult household member. For boys in treatment households, these increases closely follow their reduced market labor supply. Similarly, young children's short-term nutritional status - as measured by their weight-for-height Z-score - also improves dramatically. We argue that these treatment effects will be considerably larger when compared to the counterfactual scenario of no ARV treatment. The results provide evidence on how intrahousehold resource allocation is altered in re-sponse to significant health improvements. Since the improvements in children's schooling and nutrition at these critical early ages will affect their socio-economic outcomes in adulthood, the widespread provision of ARV treatment is likely to generate significant long-run macroeconomic benefits.

NBER Working Paper 12733
John F. Cogan, R. Glenn Hubbard, Daniel P. Kessler
Evaluating Effects of Tax Preferences on Health Care Spending and Federal Revenues

In this paper, we calculate the consequences for health spending and federal revenues of an above-the-line tax deduction for out-of-pocket health spending. We show how the response of spending to this expansion in the tax preference can be specified as a function of a small number of behavioral parameters that have been estimated in the existing literature. We compare our estimates to those from other researchers. And, we use our analysis to derive some implications for tax policy toward HSAs.

NBER Working Paper 12735
Angus Deaton
Global Patterns of Income and Health: Facts,Interpretations, and Policies

People in poor countries live shorter lives than people in rich countries so that, if we scale income by some index of health, there is more inequality in the world than if we consider income alone. Such international inequalities in life expectancy decreased for many years after 1945, and the strong correlation between income and life-expectancy might lead us to hope that economic growth will improve people's health as well as their material living conditions. I argue that the apparent convergence in life expectancies is not as beneficial as might appear, and that, while economic growth is the key to poverty reduction, there is no evidence that it will deliver automatic health improve-ments in the absence of appropriate conditions. The strong negative correlation between economic growth on the one hand and the pro-portionate rate of decline of infant and child mortality on the other vanishes altogether if we look at the relationship between growth and the absolute rate of decline in infant and child mortality. In effect, the correlation is between the level of infant mortality and the growth of real incomes, most likely reflecting the importance of factors such as education and the quality of institutions that affect both health and growth.


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