Volume 9, Issue 1

Diabetes is a common and very costly chronic disease. There is broad-based agreement on how to manage diabetes, yet less than 40% of adults with diabetes achieve guideline-recommended levels of medical care. We investigate the reasons for this phenomenon by examining the business case for improved diabetes care from the perspective of a single health plan (HealthPartners of Minnesota). The potential benefits accruing to a health plan from diabetes disease management include medical care cost savings and higher premiums. The potential costs to the health plan derive from disease management program costs and adverse selection. We find that the implementation of diabetes disease management coincided with large health improvements. For a defined population of diabetes patients, medical care cost savings over several years were small in the closed panel medical group but moderate for the health plan overall. We find evidence that adverse selection and the timing of cost and benefits worsen the health plan business case. In addition, the payment systems, from purchaser to health plan and health plan to provider, are very weakly connected to the quality of diabetes care, further weakening the business case. Finally, overlapping provider networks create a public goods externality that limits the health plan’s ability to privately capture the benefits from its investments. Nonetheless, it is clear that improved diabetes care affords economic benefits to health plans as well as valuable quality of life benefits to adults with diabetes.

This paper uses data from physician group practice to examine the relationship between malpractice premium levels and physician net incomes for the years 1994, 1998, and 2002, a period in which malpractice premiums rose rapidly. We find, as did work covering earlier periods of premium growth, that physician net incomes were not reduced by high or rising premiums, and that gross practice revenues were higher when premiums were higher. There is evidence that this forward shifting of costs was associated more with higher quantities of services than with higher unit fees.

In this paper we take a historical perspective to examine the effects of managed care and hospital competition on hospital cost and revenue growth during managed care’s boom period (1990-1994), mature period (1995-1999), and backlash period (2000-2003). We find that while higher managed care presence, in particular, HMOs, was effective in slowing down hospital cost and revenue growth during the boom and the mature periods, its cost containment effect diminished during the backlash period. This result is stable under different specifications and sensitivity analyses. Hospital competition effects, however, remain strong throughout the three periods. It appears that hospital competition effects were initially the result of aggressive selective contracting in the high managed care markets, but were later fueled by the less saturated, but growing managed care markets that seemed to catch up with the more developed markets.

We used claims data from a large U.S. employer that introduced changes in its medical and drug coverage offerings in 2002 for non-Medicare eligible retirees. In addition to the existing plans, the employer introduced two new plans in 2002 that were less generous both in terms of medical and drug coverage. Further, one of the new plans had an annual benefit limit of $2,500 on prescription drugs, similar to the “doughnut hole” in the standard Medicare Part D benefit. We examined beneficiaries switching behavior in response to the new choice set and estimated the independent effects of medical and drug benefits on plan selection. We found that beneficiaries in better health were more likely to switch to the new, less generous plans. While the generosity of the medical benefit played a more important role in choosing a plan, choices did not vary significantly by health status. In contrast, sicker individuals were more likely to enroll in plans with generous drug benefits. This suggests that drug coverage may be more susceptible to adverse selection than medical insurance.

Health accounts document changes over time in the level and composition of health spending. There has been a continued evolution in the ability to track such outlays. Less rapid has been the ability to interpret changes in spending. In this paper we apply quality adjusted price indexes for several major mental disorders to national mental health expenditure account estimates to assess changes in real "output". We show that using the new price indexes reveals large gains in real output relative to the application of the U.S. Bureau of Labor Statistics' indexes.