The Price of Health Care: Why Is the United States an Outlier?
Tal Gross & Miriam Laugesen
Journal of Health Politics, Policy and Law, October 2018, Pages 771-791
Higher prices are increasingly recognized as a significant cause of the outlier status of the United States in health care expenditures. At the same time, various explanations are often invoked to justify higher prices as rational or even defensible. We evaluate - and mostly counter - potential explanations of why health care prices are higher in the United States: upper-tail income inequality explains higher physician incomes; physicians need to recoup higher training costs; American patients are perceived to have different preferences, while providers face higher medical malpractice and administrative costs; health care purchasing occurs in a fragmented marketplace; and rent seeking rewards providers with favorable prices at the expense of consumers. Of these explanations, rent seeking is compelling partly because it is more consistent than other explanations in explaining higher prices across all sectors of the health care system. We also discuss why administrative costs are gaining recognition as an important factor; however, the understanding of their contribution and the knowledge of solutions is evolving, rather than fully developed. Policy solutions to address rent seeking are challenging, because they threaten provider income. Most solutions, such as price transparency, are often touted as a magic bullet, but these are likely to be effective only in combination with other solutions.
Diminishing Insurance Choices In The Affordable Care Act Marketplaces: A County-Based Analysis
Kevin Griffith, David Jones & Benjamin Sommers
Health Affairs, October 2018, Pages 1678-1684
While the Affordable Care Act has expanded health insurance to millions of Americans through the expansion of eligibility for Medicaid and the health insurance Marketplaces, concerns about Marketplace stability persist - given increasing premiums and multiple insurers exiting selected markets. Yet there has been little investigation of what factors underlie this pattern. We assessed the county-level prevalence of limited insurer participation (defined as having two or fewer distinct participating insurers) in Marketplaces in the period 2014-18. Overall, in 2015 and 2016 rates of insurer participation were largely stable, and approximately 80 percent of counties (containing 93 percent of US residents) had at least three Marketplace insurers. However, these proportions declined sharply starting in 2017, falling to 36 percent of counties and 60 percent of the population in 2018. We also examined county-level factors associated with limited insurer competition and found that it occurred disproportionately in rural counties, those with higher mortality rates, and those where insurers had lower medical loss ratios (that is, potentially higher profit margins), as well as in states where Republicans controlled the executive and legislative branches of government. Decreased competition was less common in states with higher proportions of residents who were Hispanic or ages 45-64 and states that chose to expand Medicaid.
The Price Ain’t Right? Hospital Prices and Health Spending on the Privately Insured
Zack Cooper et al.
Quarterly Journal of Economics, forthcoming
We use insurance claims data covering 28 percent of individuals with employer-sponsored health insurance in the US to study the variation in health spending on the privately insured, examine the structure of insurer-hospital contracts, and analyze the variation in hospital prices across the nation. Health spending per privately insured beneficiary differs by a factor of three across geographic areas and has a very low correlation with Medicare spending. For the privately insured, half of the spending variation is driven by price variation across regions and half is driven by quantity variation. Prices vary substantially across regions, across hospitals within regions, and even within hospitals. For example, even for a near homogenous service such as lower-limb MRIs, about a fifth of the total case-level price variation occurs within a hospital in the cross-section. Hospital market structure is strongly associated with price levels and contract structure. Prices at monopoly hospitals are 12 percent higher than those in markets with four or more rivals. Monopoly hospitals also have contracts that load more risk on insurers (e.g. they have more cases with prices set as a share of their charges). In concentrated insurer markets the opposite occurs - hospitals have lower prices and bear more financial risk. Examining the 366 mergers and acquisitions that occurred between 2007 and 2011, we find that prices increased by over 6 percent when the merging hospitals were geographically close (e.g. 5 miles or less apart), but not when the hospitals were geographically distant (e.g. over 25 miles apart).
The ACA Medicaid Expansion in Michigan and Financial Health
Sarah Miller et al.
NBER Working Paper, September 2018
This article examines the impact of the Affordable Care Act Medicaid expansion in Michigan, the Healthy Michigan Program (HMP), on the financial well-being of new Medicaid enrollees. Our analysis uses a dataset on credit reports matched to administrative data on HMP enrollment and use of health care services. We find that enrollment is associated with large improvements in several measures of financial health, including reductions in unpaid bills, medical bills, over limit credit card spending, delinquencies, and public records (such as evictions, judgments, and bankruptcies). These benefits are apparent across several subgroups, although individuals with greater medical need (such as those with chronic illnesses) experience the largest improvements.
Market Power: Price Variation Among Commercial Insurers For Hospital Services
Ge Bai & Gerard Anderson
Health Affairs, October 2018, Pages 1615-1622
Much research has focused on differences in hospital prices paid by private (commercial) versus public (Medicare and Medicaid) health insurers. Far less is known about price differences across commercial payers - health maintenance organizations (HMOs) or preferred provider organizations (PPOs) versus other payers, such as casualty (automobile), workers’ compensation, and travel insurers. We found that other insurers had far less negotiating power with hospitals than commercial HMO/PPO insurers did. In the period 2010-16, the median price paid by HMO/PPO insurers for hospital services in Florida increased from 1.9 times to 2.5 times the Medicare price, respectively, while the median price paid by other insurers increased from 2.8 times to 3.8 times the Medicare price. Commercial HMO/PPO insurers’ prices were similar across major hospital systems, regardless of ownership, while other insurers’ prices differed substantially across systems. In 2016 the twenty hospitals with the highest prices (7.8-14.1 times the Medicare rate) for other insurers in Florida were all affiliated with the Hospital Corporation of America. These hospitals generated 24 percent of their commercial net revenue (median) from other payers, despite treating a relatively small proportion of patients covered by these payers. Protecting patients with other insurance from high hospital prices requires efforts by policy makers, hospitals, and insurers.
A Test of Supply-side Explanations of Geographic Variation in Health Care Use
Kevin Callison, Robert Kaestner & Jason Ward
NBER Working Paper, September 2018
Evidence of regional variation in health care utilization has been well-documented over the past 40 years. Yet uncertainty persists about whether this variation is primarily the result of supply-side or demand-side forces, and the difference matters for both theory and policy. In this article, we provide new evidence as to the cause of geographic variation in health care utilization. We do so by examining changes in health care use by the near-elderly as they transition from being uninsured into Medicare. Results provide support for a causal supply-side explanation of regional variation. Estimates indicate that gaining Medicare coverage in above-median spending regions increases the probability of at least one hospital visit by 36% and the probability of having more than five doctor visits by 25% relative to similar individuals in below-median spending regions.
Prices For Cardiac Implant Devices May Be Up To Six Times Higher In The US Than In Some European Countries
Martin Wenzl & Elias Mossialos
Health Affairs, October 2018, Pages 1570-1577
Medical devices are estimated to account for 6 percent of health expenditures in the US and 7 percent in European Union (EU) countries. Cardiac implants are a large segment of the market, but little is known about their prices. Using 2006-14 data from a large hospital panel survey, this article provides a systematic comparison of prices of cardiac implants between the US and four EU countries. The data reveal that prices were two to six times higher in the US than in Germany, where cardiac implants were generally the cheapest. Prices also varied between EU countries. Prices of coronary stents and pacemakers were higher in France and Italy than in the UK, where prices were similar to those in Germany. The data also confirmed findings of prior studies that found significant price variation between hospitals within a given country. This study found that within- and between-country variations were similar in magnitude. While these findings can help assess whether technology-related policies effectively control the prices of cardiac devices, future research is necessary to establish a causal relationship between prices and several possible explanatory factors and help policy makers understand which mechanisms are available to control device prices.
Biology Meets Behavior in a Clinical Trial: Two Relationships Between Mortality and Mammogram Receipt
NBER Working Paper, September 2018
I unite the medical and economics literatures by examining relationships between biology and behavior in a clinical trial. Specifically, I identify relationships between mortality and mammogram receipt using data from the Canadian National Breast Screening Study, an influential clinical trial on mammograms. I find two important relationships. First, I find 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, I find 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. My 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.
Who Votes for Medicaid Expansion? Lessons from Maine's 2017 Referendum
David Matsa & Amalia Miller
NBER Working Paper, September 2018
In November 2017, Maine became the first state in the nation to vote on a key provision of the Affordable Care Act: the expansion of Medicaid. We analyze local voting results to identify characteristics of areas that support Medicaid expansion. Support is strongly correlated with voter education. Places with more bachelor’s degree holders more often vote in favor, whereas those with more associate’s degree graduates vote against. Other patterns are consistent with economic self-interest. Conditional on education rates, areas with more uninsured individuals who would qualify for expanded coverage tend to vote in favor, while those with more high-income individuals vote against. Also conditional on education rates, greater hospitals employment is associated with support for expansion, but the presence of other health professionals, whose incomes might decrease from expansion, is associated with less support. Extrapolating from Maine to other states, our model predicts that hypothetical referendums on Medicaid expansion would pass in five of the 18 states that had not yet expanded Medicaid coverage.
Mortality Risk, Insurance, and the Value of Life
Daniel Bauer, Darius Lakdawalla & Julian Reif
NBER Working Paper, September 2018
We develop and apply a generalized framework for valuing health and longevity improvements that departs from conventional assumptions of full annuitization and deterministic mortality. In contrast to conventional theory, we find a given mortality improvement may be worth more, not less, to patients facing shorter lives. Using real-world data, we calculate that severe illness can increase the value of statistical life by over $1 million. This result reconciles an anomaly in the research on preferences for life-extension. Moreover, our framework can value the prevention of mortality and of illness. We calculate that treating illness is up to an order of magnitude more valuable to consumers than prevention, even when both extend life equally. This asymmetry helps explain low observed investment in preventive care. Finally, we show that retirement annuities boost aggregate demand for life-extension. For instance, Social Security adds $11.5 trillion (10.5 percent) to the value of post-1940 longevity gains.
Health Insurance, Hospitals, or Both? Evidence from the United Mine Workers' Health Care Programs in Appalachia
Theodore Figinski & Erin Troland
U.S. Department of the Treasury Working Paper, August 2018
Should the government subsidize health insurance, health care facilities, or both? The United States has subsidized both for many decades, targeting under-served populations and geographic areas. We study these questions in the first rigorous quantitative analysis of two major natural experiments in Appalachian coal country. In the early 1950s, the United Mine Workers of America (UMWA) coal mining union began to provide free health insurance to coal miners and their families. A few years later, the UMWA opened ten new state-of-the-art hospitals in Appalachia. These interventions give us the unique opportunity to separately identify (i) the effect of health insurance from (ii) the combined effect of the insurance plus new hospitals for the same place, time, and population. To do so, we use difference-in-differences at the county-year level. We find that the health insurance had large effects on pregnant women and infants. A woman’s probability of delivering her baby in a hospital increased from 60 percent to over 90 percent. The probability of her infant dying before the age of one decreased from 36 to 9 per 1,000. For the new hospitals, crowd-out was low. Adding UMWA hospitals increased hospital beds by more than 50 percent. Health care workers more than doubled.
The Effects of Medicaid Expansion on Labor Market Outcomes: Evidence from Border Counties
Lizhong Peng, Xiaohui (Ronnie) Guo & Chad Meyerhoefer
NBER Working Paper, September 2018
This paper provides new empirical evidence on the employment and earning effects of the recent Medicaid expansion. Unlike most existing studies that use a conventional state and year fixed effects approach, our main identification strategy is based on the comparison of employment and wages in contiguous county-pairs in neighboring states (i.e. border counties) with different Medicaid expansion status. Using the 2008-2016 Quarterly Census of Employment and Wages, we estimate a set of distributed lag models in order to examine the dynamic effects of Medicaid expansion. Results from our preferred specification suggest a small but statistically significant decrease in employment of 1.3 percent one year after the Medicaid expansion. This disemployment effect is transitory and appears to primarily occur in low-wage sectors. In particular, employment returns to pre-expansion levels within two years. We also do not find any statistically significant effect of the Medicaid expansion on wages at any point.
Public Health Insurance and Prescription Medications for Mental Illness
Johanna Catherine Maclean et al.
B.E. Journal of Economic Analysis & Policy, forthcoming
Mental illnesses are prevalent in the United States and globally. Cost is a critical barrier to treatment receipt. We study the effects of the Affordable Care Act's recent expansion of Medicaid, a public insurance system for the poor in the U.S., on psychotropic prescription medications for mental illness. We estimate differences-in-differences models using administrative data on medications for which Medicaid was a third-party payer over the period 2011-2017. Our findings suggest that these expansions increased psychotropic prescriptions by 21.0%. We show that Medicaid, and not patients, financed these prescriptions. For states expanding Medicaid, the total cost of these prescriptions was $28.0 M by the second quarter of 2017. Expansion effects were experienced across most major mental illness categories and across states with different levels of patient need, system capacity, and expansion scope. We find no statistically significant evidence that Medicaid expansion reduced mental illness.
The Maryland Health Enterprise Zone Initiative Reduced Hospital Cost And Utilization In Underserved Communities
Darrell Gaskin et al.
Health Affairs, October 2018, Pages 1546-1554
The State of Maryland implemented the Health Enterprise Zone Initiative in 2013 to improve access to health care and health outcomes in underserved communities and reduce health care costs and avoidable hospital admissions and readmissions. In each community the Health Enterprise Zone Initiative was a collaboration between the local health department or hospital and community-based organizations. The initiative was designed to attract primary care providers to underserved communities and support community efforts to improve health behaviors. It deployed community health workers and provided behavioral health care, dental services, health education, and school-based health services. We found that the initiative was associated with a reduction of 18,562 inpatient stays and an increase of 40,488 emergency department visits in the period 2013-16. The net cost savings from reduced inpatient stays far outweighed the initiative’s cost to the state. Implementing such initiatives is a viable way to reduce inpatient admissions and reduce health care costs.
Medicare Beneficiaries Living In Housing With Supportive Services Experienced Lower Hospital Use Than Others
Michael Gusmano, Victor Rodwin & Daniel Weisz
Health Affairs, October 2018, Pages 1562-1569
There is strong evidence that housing conditions affect population health, but evidence is limited on the extent to which housing with supportive social services can maintain population health and reduce the use of expensive hospital services. We examined a nonprofit, community-based program in Queens, New York, that supplied affordable housing with supportive social services to elderly Medicare beneficiaries. We evaluated whether this program reduced hospital use, including hospital discharges for ambulatory care-sensitive conditions (ACSCs). We compared hospital use among an intervention group residing in six high-rise buildings in two neighborhoods to that among their Medicare counterparts living in the same neighborhoods but in different buildings. We found that hospital discharge rates were 32 percent lower, hospital lengths-of-stay one day shorter, and ACSC rates 30 percent lower among residents in the intervention group than among people in the comparison group. This suggests that investments in housing with supportive social services have the potential to reduce hospital use and thereby decrease spending for vulnerable older patients.
The Effects of Provider Choice Policies on Workers’ Compensation Costs
David Neumark & Bogdan Savych
Health Services Research, forthcoming
Data Sources/Study Setting: Pooled cross‐sectional analysis of administrative claims records for workers with work‐related injuries primarily in 2007-2010 across 25 states (n = 4,489,729).
Study Design: We used linear and quantile regression analyses to evaluate differences in claim costs (medical and indemnity) based on whether policies give employers or injured workers control over the choice of provider.
Principal Findings: We find no difference in average medical costs by provider choice policies, although a distributional analysis indicates higher developed medical costs for the costliest back injury cases in states where workers control provider choice. The evidence for indemnity costs is similar, although the point estimates also indicate (statistically insignificantly) higher average costs when policies give workers more control of the choice of provider.
The relationship between nursing home quality and costs: Evidence from the VA
Kathleen Carey et al.
PLoS ONE, September 2018
Ensuring quality of care in nursing homes is a public health priority, yet how nursing home quality relates to cost is not well understood. This paper addresses this relationship for 132 VA community living centers (nursing homes), for fiscal years 2014 and 2015. We estimated cost models using the VA Decision Support System which tracks total direct costs and nursing direct costs for individual resident segments of care. We summed residents’ total costs and nursing costs to the community living center level for each year. Annual facility costs then were regressed on quality of care measured with composite scores based on 13 distinct adverse events. Results indicated that higher quality was associated with higher predicted cost. However, we did not find evidence that higher costs were driven by high nurse staffing levels.