The Economics of Health

Kevin Lewis

December 29, 2009

An Economic Evaluation of the War on Cancer

Eric Sun, Anupam Jena, Darius Lakdawalla, Carolina Reyes, Tomas Philipson & Dana Goldman
NBER Working Paper, December 2009

For decades, the US public and private sectors have committed substantial resources towards cancer research, but the societal payoff has not been well-understood. We quantify the value of recent gains in cancer survival, and analyze the distribution of value among various stakeholders. Between 1988 and 2000, life expectancy for cancer patients increased by roughly four years, and the average willingness-to-pay for these survival gains was roughly $322,000. Improvements in cancer survival during this period created 23 million additional life-years and roughly $1.9 trillion of additional social value, implying that the average life-year was worth approximately $82,000 to its recipient. Health care providers and pharmaceutical companies appropriated 5-19% of this total, with the rest accruing to patients. The share of value flowing to patients has been rising over time. These calculations suggest that from the patient's point of view, the rate of return to R&D investments against cancer has been substantial.


On the Rise of Health Spending and Longevity

Raquel Fonseca, Pierre-Carl Michaud, Titus Galama & Arie Kapteyn
RAND Working Paper, December 2009

We use a calibrated stochastic life-cycle model of endogenous health spending, asset accumulation and retirement to investigate the causes behind the increase in health spending and life expectancy over the period 1965-2005. We estimate that technological change along with the increase in the generosity of health insurance may explain independently 53% of the rise in health spending (insurance 29% and technology 24%) while income less than 10%. By simultaneously occurring over this period, these changes may have lead to a "synergy" or interaction effect which helps explain an additional 37% increase in health spending. We estimate that technological change, taking the form of increased productivity at an annual rate of 1.8%, explains 59% of the rise in life expectancy at age 50 over this period while insurance and income explain less than 10%.


Playing With Fire: Cigarettes, Taxes and Competition From the Internet

Austan Goolsbee, Michael Lovenheim & Joel Slemrod
NBER Working Paper, December 2009

This paper documents the rise of the Internet as a source of state-tax-free cigarettes and its impact on taxed sales elasticities. Using data on cigarette tax rates, taxable cigarette sales and individual smoking rates by state from 1980 to 2005 merged with data on Internet penetration, the paper documents that there has been a substantial increase in the sensitivity of taxable cigarette sales to state tax rates that is correlated with the rise of Internet usage within states. The estimates imply that the increased sensitivity from cigarette smuggling over the Internet has lessened the revenue generating potential of cigarette tax increases significantly, although states are still far from the revenue-maximizing tax rates.


The Effect of Bans and Taxes on Passive Smoking

Jérôme Adda & Francesca Cornaglia
American Economic Journal: Applied Economics, January 2010, Pages 1-32

We evaluate the effect of smoking bans and excise taxes on the exposure to tobacco smoke of nonsmokers, and we show their unintended consequences on children. Smoking bans perversely increase nonsmokers' exposure by displacing smokers to private places where they contaminate nonsmokers. We exploit data on bio-samples of cotinine, time use, and smoking cessation, as well as state and time variation in anti-smoking policies across US states. We find that higher taxes are an efficient way to decrease exposure to tobacco smoke.


Relationship Between Population Density of Attorneys and Prevalence of Methicillin-Resistant Staphylococcus aureus: Is Medical-Legal Pressure on Physicians a Driving Force Behind the Development of Antibiotic Resistance?

George Sakoulas, Gary Wormser, Paul Visintainer, Wilbert Aronow & Robert Nadelman
American Journal of Therapeutics, September/October 2009, Pages e1-e6

We performed a hypothesis-generating study evaluating the perceived threat of lawsuits among physicians and methicillin resistance in Staphylococcus aureus. We found a correlation between the prevalence of methicillin resistance among clinical S. aureus isolates and both antibiotic prescriptions per capita and density of attorneys in countries in Europe and North America. We did not find a correlation between prevalence of methicillin resistance and physician density. Further investigation is warranted to study whether physicians' perceived fear of lawsuits, of which attorney density may be a crude surrogate marker, results in antibiotic prescription practices that contribute to the emergence of antimicrobial resistance among virulent pathogens such as S. aureus, with global implications on the ethics of the delivery of quality health care to all members of society.


Healthy, educated and wealthy: A primer on the impact of public and private welfare expenditures on economic growth

Sergio Beraldo, Daniel Montolio & Gilberto Turati
Journal of Socio-Economics, December 2009, Pages 946-956

In this paper, we provide first evidence of the impact of public and private expenditures in health and education on economic growth, via their influence on people's health, skills and knowledge. We consider a growth accounting framework in order to test whether countries that devote a larger amount of resources to the consumption of health and educational services experience higher growth rates. We also test whether the effects on economic growth of public expenditure in health and education differ from those of private expenditure. Our empirical analysis is based on a panel of 19 OECD countries observed between 1971 and 1998. The results are consistent with the hypothesis that health and education expenditure affects positively growth. The estimated impact is stronger for health than for education. More importantly, we find some evidence that public expenditure influences GDP growth more than private expenditure.


Incrementing Toward Nowhere: Universal Health Care Coverage in the States

Virginia Gray, David Lowery, James Monogan & Erik Godwin
Publius: The Journal of Federalism, Winter 2010, Pages 82-113

Despite successful adoption of other health care reforms, the states collectively have been no more successful than the federal government in achieving universal coverage. Do the same forces stopping reform at the national level also restrict states? Are the incremental steps that states have taken toward coverage likely to lead to real reform? Analysis of state activity from 1988 to 2002 shows that where Democrats are in charge and where their allied interests predominate, state legislative activity on universal care is more likely. Diffusion results indicate that what was at first a policy bandwagon effect turned into a negative diffusion effect or brake on efforts to expand coverage. We are pessimistic about the long-term success of incremental efforts and instead outline the requirements for a punctuated approach.


Medical Ethics and Media-Created Crisis: A Case Study in Medical Malpractice Reform

Daniel Lorence, Robert Jameson & Jeanine Palilla
Studies in Ethics, Law, and Technology, August 2009

The objective of this study was to determine the extent of decline in level of access and quality of services reported by healthcare consumers during a media campaign to limit recovery for damages incurred through medical malpractice. Serving as a natural experiment, this campaign involved a widely publicized statewide "malpractice crisis," promoted as causing mass exodus of medical providers from the state. The (reported) resulting reduction in services, especially for the most underserved areas and populations, though unproven, had been touted as justification for amending the state constitution. Patient survey responses collected during the crisis indicated relatively high levels of satisfaction with access and quality of care during the publicized crisis (and alleged provider exodus). Similar organized malpractice crises examined from previous years suggest that policymakers should demonstrate caution when responding to a perceived crisis, especially when economic benefit for a particular interest group is at stake. Further, a lack of ethics in media through inaccurate reporting and sensationalism may lead to a seductive invitation to like ethical lapses by medical professionals in their attempts to shape policy through artificial crises creation.


The Relative Health Burden of Selected Social and Behavioral Risk Factors in the United States: Implications for Policy

Peter Muennig, Kevin Fiscella, Daniel Tancredi & Peter Franks
American Journal of Public Health, forthcoming

Objectives: We sought to quantify the potential health impact of selected medical and nonmedical policy changes within the United States.

Methods: Using data from the 1997-2000 National Health Interview Surveys (linked to mortality data through 2002) and the 1996-2002 Medical Expenditure Panel Surveys, we calculated age-specific health-related quality-of-life scores and mortality probabilities for 8 social and behavioral risk factors. We then used Markov models to estimate the quality-adjusted life years lost.

Results: Ranked quality-adjusted life years lost were income less than 200% of the poverty line versus 200% or greater (464 million; 95% confidence interval [CI]=368, 564); current-smoker versus never-smoker (329 million; 95% CI=226, 382); body mass index 30 or higher versus 20 to less than 25 (205 million; 95% CI=159, 269); non-Hispanic Black versus non-Hispanic White (120 million; 95% CI=83, 163); and less than 12 years of school relative to 12 or more (74 million; 95% CI=52, 101). Binge drinking, overweight, and health insurance have relatively less influence on population health.

Conclusions: Poverty, smoking, and high-school dropouts impose the greatest burden of disease in the United States.


The Effects of Product Liability Exemption in the Presence of the FDA

Tomas Philipson, Eric Sun & Dana Goldman
NBER Working Paper, December 2009

In the United States, drugs are jointly regulated by the US Food and Drug Administration, which oversees premarket clinical trials designed to ensure drug safety and efficacy, and the liability system, which allows patients to sue manufacturers for unsafe drugs. In this paper, we examine the potential welfare effects of this dual system to ensure the safety of medical products, and conclude that product liability exemptions for FDA regulated activities could raise economic efficiency. When the safety level mandated by the FDA is binding-in the sense that manufacturers will not conduct additional clinical testing beyond what is mandated by FDA-then product liability may reduce efficiency by raising prices without pushing firms, who are already bound by the FDA's requirements, to invest further in product safety. We consider as a case study the National Vaccine Injury Compensation Program, which sharply reduced vaccine manufacturer's liability in 1988. We find evidence that the program reduced prices without affecting vaccine safety, suggest that liability limits can enhance economic efficiency in the presence of the FDA.


A Duty to Deceive: Placebos in Clinical Practice

Bennett Foddy
American Journal of Bioethics, December 2009, Pages 4-12

Among medical researchers and clinicians the dominant view is that it is unethical to deceive patients by prescribing a placebo. This opinion is formalized in a recent policy issued by the American Medical Association (AMA [Chicago, IL]). Although placebos can be shown to be always safe, often effective, and sometimes necessary, doctors are now effectively prohibited from using them in clinical practice. I argue that the deceptive administration of placebos is not subject to the same moral objections that face other forms of deception in clinical practice and medical research. Although deception is normally objectionable on the grounds that it limits autonomy and breaches trust, these grounds do not apply to placebos when they are prescribed within appropriate ethical limits. Patients have reason to prefer that doctors can prescribe placebos in ethically responsible ways. Hence, the AMA has an obligation to endorse and to promote the responsible use of deceptive placebos in clinical practice.

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