Volume 14, Issue 1

Past research has shown that high deductible and consumer-directed health plans (HD/CDHPs) can significantly reduce health care costs. In this paper we investigate how these cost savings are realized. We use panel data from many large employers and difference in difference models to examine how HD/CDHPs affect the number of health care episodes and the cost per episode. Our results show that about two-thirds of the cost savings from HD/CDHP enrollment are from reductions in number of episodes and the remaining one-third of the savings are from reductions in costs per episode. The presence of a Health Reimbursement Arrangement (HRA) or Health Savings Account (HSA) does not temper the effects of high deductibles on number of episodes. However, enrollees in plans with generous employer contributions to HSAs have more episodes of care than enrollees in plans where employers make smaller account contributions. The reductions in costs per episode and in visits to specialists, inpatient care, and use of non-generic pharmaceuticals suggest that higher deductibles are effective at making patients more cost conscious even after care is initiated.

The pricing of medical products and services in the U.S. is notoriously complex. In health care, supply prices (those received by the manufacturer) are distinct from demand prices (those paid by the patient) due to health insurance. The insurer, in designing the benefit, decides what prices patients pay out-of-pocket for drugs and other products. In this primer we characterize cost and supply conditions in markets for generic and branded drugs, and apply basic tools of microeconomics to describe how an insurer, acting on behalf of its enrollees, would set demand prices for drugs. Importantly, we show how the market structure on the supply side, characterized alternatively by monopoly (unique brands), Bertrand differentiated product markets (therapeutic competition) and competition (generics), influences the insurer’s choices about demand prices. This perspective sheds light on the choice of coinsurance versus copayments, the structure of tiered formularies, and developments in the retail market.

This paper assesses the effects of household investments through child educating activities on child neurodevelopment between the ages of 3 and 24 months, and evaluates whether investments explain racial and socioeconomic developmental gaps in South America. Quantile regression is used to evaluate the heterogeneity in investment effects by unobserved developmental endowments. The study finds large positive investment effects on early child neurodevelopment, with generally larger effects among children with low developmental endowments (children at the left margin of the development distribution). Investments explain part of the observed racial gaps and the whole socioeconomic developmental gap. Investments may compensate for low endowments and policy interventions to increase investments may reduce early development gaps and result in high social and economic returns.

The idea of using 'fat taxes’ to curb obesity rates has been raised by many. In particular, the idea of taxing sugar-sweetened beverages (SSBs) has received considerable attention in the United States and has recently been discussed by President Obama. Rather less attention has been given to the alternative of 'thin subsidies’, that is, subsidies for the consumption of foods or beverages likely to be associated with reduced incidence of obesity. This commentary examines the case for a subsidy for artificially sweetened beverages (ASBs) or 'diet soft drinks’. In this commentary, we outline the evidence on the relationship between health outcomes, most notably obesity, and the consumption of SSBs and ASBs. In the light of the evidence we consider the economic effects of taxing SSBs, and the way in which those effects would be modified by the adoption of the alternative 'thin subsidy’ based on subsidising ASBs.

Patients as consumers are assuming a more active role in their medical care decision-making, which has been prompted by better access to medical information. Patient use of medical information may affect physician practice incentives to provide care, which critically depends on the agency relationship between physician and patient. If patient use of medical information improves communication and understanding, physicians may need to spend less time explaining what treatments are needed and convincing patients about the appropriateness of their recommendations, increasing incentives to provide care. If patients use information to demand treatments and procedures that are at odds with what the physician would recommend, this might lead to a contentious relationship, making it more difficult to agree upon any course of treatment. We use the Community Tracking Study (CTS) physician survey data, a nationally representative sample in the United States, to study the effects of more-informed patients on physician incentives to provide care. We estimate ordinary least squares and ordered probit models, and apply instrumental variables method to correct for the potential endogeneity of the measure of more-informed patients. The empirical results indicate that more-informed patients appear to be reducing physician incentives to provide care. This is consistent with the view that patient use of medical information from alternative sources besides their own physician may be interfering with the physician’s ability to provide care.

We use health care claims data from 59 large employers to estimate how consumer-directed health plans (CDHPs)—plans that combine a high deductible with personal accounts—affect health care costs and the use of preventive services by vulnerable populations. The vulnerable populations studied are those that will have increased access to health insurance under health care reform: families with high health care needs and low income families. A difference-in-difference framework is used with costs and use available for a full year before and after enrolling in a CDHP and for controls. Our key finding is that in almost all cases, CDHP benefit designs affect lower income populations and the chronically ill to the same extent as non-vulnerable populations. These effects include significant reductions in overall spending that increase with the level of the deductible and greater reductions for high deductible plans when paired with health savings accounts (HSAs) in comparison to health reimbursement arrangements (HRAs). However, enrollment in CDHPs also leads to reductions in care that is considered beneficial for all groups, and this may have greater health consequences for lower income and chronically ill people than for others.

In 2008 San Francisco implemented major health reform, becoming the first city to adopt a pay-or-play employer health spending mandate. It also created Healthy San Francisco, a new “public option” low-cost health access plan for the uninsured. This study evaluates employer-level health benefit offering responses to the pay-or-play mandate in the first year of implementation using the 2008 Bay Area Employer Health Benefits Survey and a difference-in-difference estimator. Although 92% of firms subject to the mandate already offered insurance prior to enactment, we find that 76% of firms had to expand benefits to comply with the minimum hourly spending requirement for each worker. Nevertheless, most surveyed San Francisco employers (61%) were supportive of the law. There is substantial employer demand for the public option, with 18% of firms using Healthy San Francisco for at least some employees, yet there is little evidence of firms dropping or restricting existing insurance offerings in the first year after implementation. A non-trivial portion of firms chose to meet the mandate by paying into health reimbursement accounts (14%). These results confirm that employer mandate details can have crucial effects on employer behavior. While there are important geographic and political characteristics of San Francisco that are important to bear in mind, San Francisco’s early experience suggests that implementation of a strong pay-or-play mandate is indeed feasible.

The literature on tobacco control funding has focused on its impact on the demand for tobacco products. This paper turns the issue around by utilizing state-level panel data to address the determinants of per capita tobacco control funding. Tobacco control funding is found to be increasing with per capita income, cigarette consumption, and cigarette taxes, but decreasing with population density and neighbor-state tobacco control funding. Political affiliation, cancer and heart attack mortalities, as well as the extent of smoke-free air laws, have little impact on tobacco control funding. Results are robust to addressing the endogeneity of cigarette consumption and cigarette taxes.

This paper first proposes a theoretical model of smoker behaviour that serves as a vehicle to evaluate workplace smoking bans. It is a nicotine inventory management model where smoking during one phase of the day impacts utility in other phases. Smoking intensity choice forms part of the optimization. Calibrated model simulations suggest that, with the exception of heavy smokers, workplace bans have small impacts due to substitution possibilities. Quantile regression estimates support the theory. However, restrictions on smoking in the home are an order of greater importance, even when instrumented. The policy conclusion is that workplace ban effectiveness depends heavily upon private choices.

Current estimates of obesity costs ignore the impact of future weight loss and gain, and may either over or underestimate economic consequences of weight loss. In light of this, I construct static and dynamic measures of medical costs associated with body mass index (BMI), to be balanced against the cost of one-time interventions. This study finds that ignoring the implications of weight loss and gain over time overstates the medical-cost savings of such interventions by an order of magnitude. When the relationship between spending and age is allowed to vary, weight-loss attempts appear to be cost-effective starting and ending with middle age. Some interventions recently proven to decrease weight may also be cost-effective.

An extensive literature has demonstrated geographic variation in medical services and this variation has been largely attributed to the health care system and not to regional differences in patient behavior. We use empirical Bayes shrinkage models, conditional on patient, firm, and market covariates, to investigate geographic variation in adherence to prescription medications across hospital referral regions (HRRs). Models are estimated for commercially insured patients in 11 combinations of chronic diseases and drug classes. We use factor analysis to create a market-level composite measure of adherence that we relate to adjusted market-level spending on non-drug services. We find that there is a very small amount of variation in adherence to prescription drugs across HRRs supporting the widely held assumption that geographic variation is attributable to the health system. Markets with high adherence have systematically lower medical spending, and this inverse correlation is more likely due to unobserved market traits.

Erratum to http://dx.doi.org/10.2202/1558-9544.1228.