Volume 11, Issue 2

As health care consumes a growing share of GDP, the demand for better evidence regarding the effects of health care treatments and how these vary across individuals is increasing. Estimating this with observational data is difficult given the endogeneity of treatment decisions. But because the random assignment clinical trials (RACTs) used in the FDA approval process only estimate average health effects and do not consider spending, there is no good alternative. In this study we use administrative data from California's Medicaid program to estimate the impact of HIV antiretroviral treatments (ARVs). We use data on health care utilization to proxy for health status and exploit the rapid takeup of ARVs following their FDA approval. Our estimate of a 68 percent average mortality rate reduction is in line with the results from RACTs. We also find that the ARVs lowered short-term health care spending by reducing expenditures on other categories of medical care. Combining these two effects we estimate the cost per life year saved at $19,000. Our results suggest an alternative method for estimating the real-world effects of new treatments that is especially well-suited to those treatments that diffuse rapidly following their approval.

Most private health insurers offer a limited network of providers to enrollees. Critics have questioned whether selective contracting benefits patients. Plans counter that they take quality into account when choosing providers. Using data on five plans' networks for kidney transplant hospitals, this study shows that in-network hospitals have better outcomes than out-of-network facilities. Conditional logit estimates using patient level data confirm this result: compared to Medicare patients, privately-insured patients are more likely to register at hospitals with higher survival rates. Restricting choice has the potential to improve patient welfare if plans steer uninformed patients to high quality hospitals and physicians.

The creation of tax-free health savings accounts presents a new opportunity to reduce the distortions created by federal tax preferences for health-related expenditures that ultimately could help eliminate those distortions. This paper proposes changes to current law that would allow most workers to receive the full amount that they and their employer spend on their health benefits as a tax-free cash contribution to the worker's health savings account. Restructuring the exclusion for employer-sponsored health benefits in this way would enable more individuals to obtain health insurance that matches their preferences, would increase efficiency in the health care sector, and could reduce inequities created by the exclusion. These changes also offer a means of limiting the currently unlimited tax exclusion for employer-sponsored health benefits that may be more politically feasible than past proposals.

Cost has deterred many small businesses from providing health insurance to their workers. Consumer-directed health plans, which are potentially less costly than traditional health plans, may be well suited to workers in small businesses. We study the factors that are associated with CDHP offering, determine the variation in CDHP offering among large and small firms, and develop models of persistence in CDHP offering. Our analysis of the Kaiser-HRET survey shows that small firms have been no quicker in their uptake of CDHPs than larger firms, and appear to display somewhat more churning in CDHP offering than large firms. Small firms that employ between three and 49 workers are less likely to offer HRA/HSA plans conditional on offering HD plans than large firms. Furthermore, conditional on offering some health insurance, firms that employ 200 to 499 workers appear to be less likely to offer both HRA/HSA plans and HD plans compared to larger firms. Our results suggest a limited role for the current incarnation of consumer-directed health plans in encouraging small business to provide insurance.

This paper analyzes the effects of state mental health parity mandates on the labor and insurance markets. In particular, I investigate the effect of parity regulations along five margins: having employer provided health insurance coverage, employer contributions to health insurance premiums, the probability of full-time employment, working hours, and wages for a sample of private workers in firms with less than 100 employees using the Annual Demographic Surveys (March CPS) for the years 1999-2004 (and also in an extended sample of CPS 1992-2004). It is hypothesized that if parity mandates are costly they will have an impact on at least one of the above margins. I find no evidence for any of the most feared impact: a reduction in the probability of having employer-provided health insurance coverage or that state mental health parity mandates have decreased the generosity of employers' contributions to health insurance premiums. The results also lack any evidence of an impact on labor market composition or of costs having been passed onto workers in terms of lower wages.

Due to the low risk of not insuring a healthy child for a short, finite period of time, it's plausible that SCHIP mandatory wait periods, where a child must forgo private insurance for several months before enrolling in SCHIP, do not provide enough incentive for parents to keep their children enrolled in private insurance. Using data from the 1996 Survey of Income and Program Participation (SIPP), we find that children eligible for SCHIP in states with shorter mandatory wait periods are more likely to be uninsured during the six months following the implementation of SCHIP than children in states with no mandatory wait periods. These children also have lower preventative care utilization, but there is no difference in their acute care utilization or health after one year.

Basing drug reimbursement on cost-effectiveness provides too little incentives for R&D. The reason for this is that cost-effectiveness is concerned with immediate value for money. But since the price of a drug usually declines over time, the drug might well provide value for money as seen over its entire life cycle, even though its price during patent protection is too high to warrant reimbursement according to the cost-effectiveness decision rule. We show in a theoretical model that welfare could be improved if decision-makers took a longer perspective and initially allowed higher prices than immediate value for money can motivate. We also discuss the real world relevance of applying dynamic cost-effectiveness.

This study examines the impact of state health insurance regulations on the price of high-deductible family and individual polices in the nongroup market. We use a unique and rich data set on actual insurance policies sold through a large Internet health insurance distributor to examine the impact of various regulations on policy prices, controlling for policy characteristics, demographic characteristics of the purchasers, and state-level demographics. We also use data from a single major insurance firm that provided offer prices for a family policy from a set of randomly selected zip codes. Both datasets suggest a strong statistical relationship between regulation and insurance prices.

BACKGROUND: The utilization of a medicine, both before and after patent expiration, is one of the key determinants of its long-run value to society, as consumer and producer surplus accumulate as utilization occurs. However, while utilization during the years of patent protection is followed fairly closely, usage after that is generally not, as multiple manufacturers are usually involved in the production and sale of generic alternatives. Since utilization beyond patent expiration is poorly understood, we selected a random sample of 60 drugs and assessed their long-term, post-patent use during the period of generic competition.METHODS: At five-year intervals beginning with the year generic competition began (YGCB), we estimated the U.S. utilization of each drug (including all generic and branded formulations) based on the number of prescriptions dispensed as projected by the National Prescription Audit™ (1964 to 2006) conducted by IMS™. These estimates were then compared to each medicine's baseline utilization, defined as the drug's usage during the last full year of patent protection – one year prior to the year generic competition began (YGCB-1). The absolute utilization levels were converted into relative utilization levels, whereby a measure of 1.0 indicates that utilization in that year was equal to utilization in the baseline year.RESULTS: Many drugs continued to be prescribed long after patent protection ended. Even after excluding one medicine that had unusually high utilization 15 to 30 years after generic competition began, relative utilization averaged between 0.64 and 0.99 for the 5-year intervals starting with YGCB+5 and ending with YGCB+30. This was true even though several of the medicines were available over-the-counter (OTC) during some of those years and we did not have data reflecting OTC utilization. After excluding those OTC years (to focus on medicines that had more complete data), relative utilization averaged between 0.88 and 1.15.CONCLUSION: Many medicines continue to be used far beyond their period of patent protection, somewhat countering the view that newer drugs quickly replace older ones. This extended, post-patent utilization can yield additional surplus for society that is over and above the surplus generated during the period of patent protection.

This paper contributes to the economics literature on nursing market shortages by putting forward two new models that suggest three new explanations for perceived nursing shortages. The first model focuses on hospitals hiring both permanent staff nurses and temporary contract nurses. It shows that hiring both classes of nurses can represent optimizing behavior, and that an interesting kind of perceived nursing shortage results from this dual hiring. The second model posits two classes of hospitals, ``premier" and ``funds-constrained," and generates two distinct kinds of nursing shortages: economic shortages, involving unfilled, budgeted positions, and ``noneconomic" professional standards shortages. We believe that the perceived existence of professional standards shortages may be a significant explanation for the widespread impression of persistent shortages.

The quest to reduce health care cost has led many industrialized nations to reduce hospital length of stay. This paper uses instrumental variable estimation to estimate the effect of early discharge on readmission rates of maternity patients in British Columbia, Canada and investigates how the impact varied according to hospitals' degree of specialization. Principal component analysis was used to classify the hospitals according to their degree of specialization. The results show that the early discharge policy increased readmission rates, and this increase, varied according to the degree of specialization of the hospital. The increase in readmission rate is observed to be lowest in the very highly specialized hospitals and highest in the moderately specialized hospitals. The highly specialized hospitals are, however, capable of using resources most efficiently at least partly due to a reduction in the use of invasive procedures.