Labor time of various trained professionals, such as GPs, specialists, nurses, medical technicians, pharmacists, and many others, Procedures and testing, such as magnetic resonance imaging (MRI) scans and laboratory analyses of blood samples, Pharmaceutical products (which itself covers a huge range, from bandages to chemotherapy drugs). We find clear evidence of short run response to within-year variations in cost sharing. You would quite rightly suspect that their goal was not to guarantee high-quality gasoline. Consider surgery to repair a hernia. Cluster corrected standard errors use the employer*plan for clusters. When we look at an industry such as health care, one way of describing it is by counting the number of doctors offices, clinics, and so on. PMC legacy view The prices can be high because demand is high. (2015) who document heterogeneity in Medicare pharmacy demand. Monthly summary statistics on the study variables, by Types of Service (TOS). If you look at the wall in your doctors office, you will typically see a large number of framed degrees and other qualifications. We argue that the remaining variation in individual within-year cost sharing comes only from the effect of nonlinear price schedules in health plans created by deductibles and stoplosses, which we use to estimate the effects of cost sharing on demand. For more information on the source of this book, or why it is available for free, please see the project's home page. FOIA For example, if Medicaid reimbursed $500 for a gall bladder removal, Medicare would pay $625 and the commercial carrier $1,000 for the same procedure.This quote comes from a hospital in Topeka, Kansas. In the case of doctors, the underlying reason for licensing is not so nefarious. We interpret this analysis as saying that our IV strategy is strong, although not perfect. This paper revisits the classic issue of price elasticities of demand for health care services, a topic of central importance for understanding moral hazard and optimal insurance plan design, as well as having important implications for health plan choice, access to care, health care cost containment, risk adjustment, and financial risk. This is why we often read stories about people without insurance being bankrupted by medical expenses.
Nonetheless, these two prices provide upper and lower bounds on the actual spot prices plausible for each month. This is a cost not only to the individual but also to society as a whole: the economys population is producing less output. If a thirty-year-old discovers he has elevated cholesterol levels that pose a long-term risk of heart disease, he may decide to adjust his diet, perhaps consuming less red meat. Each model includes individual*year fixed effects, 12 monthly time dummies and uses employers average cost share for that year*plan*family*month, without the own individual, as an instrument. We also estimated results using a two-part model (Manning et al, 1987), in which the first stage models the binary choice of seeking care and the second stage models the continuous choice of how much treatment to obtain. In that sense, this spending is an investment. Hospitals say they have turned to the practice because of a spike in patients who dont pay their bills. Figure 16.4 Payments to Hospitals and Doctors. What is the production function for health? We chose this set of instruments on the idea that a consumer, when choosing whether to obtain care, may compensate the lack of information for a very specific type of service with information on more aggregate (ie, outpatient, inpatient or pharmaceutical) categories of care. In fact, the elasticities that we obtain from the overidentified models are, on average (weighted by spending fraction), only 1.4% smaller than the just-identified. In sharp contrast, HDHPs have sharply declining actual, backwards and forward myopic prices. The Impact of Cost-Sharing on Health Care Prices, Quantities, and Spending Dynamics. And what will you pay if you walk into a hospital without health insurance? Keeler Emmett B, Rolph John E. The Demand for Episodes of Treatment in the Health Insurance Experiment. The analysis reveals that as expected the backwards myopic and forward myopic prices have a sharp downward slope: sicker people are more likely to exceed any deductibles or stoplosses and pay lower cost shares. If the year ends with a span of one or more months with no visits, we continue the cost share used in the most recent month for the remainder of the year. We also conduct sensitivity analysis of dropping plans that rely heavily on copayments rather than cost sharing since incentives and responsiveness could potentially be quite different. Each coefficient in this table comes from a different IV regression. Einav Liran, Finkelstein Amy, Schrimpf Paul. We assume health care spending reflects attributes of the individual (i) (which also uniquely defines a household contract), employer (e), whether the plan is for a family or single coverage (f), health plan including its own unique provider network (p), geographic location such as the county or MSA (c), year (y) and a monthly time trend index (t). The conditional spending results (appendix Table A-8) predicting log(spending) are also problematic, with both positive and negative price effects detected, as can be expected given the large selection effects at the first stage. MarketScan differentiates the CDHP and HDHP from other plan types not by the size of their deductibles but instead by whether there is a flexible spending account (CDHP), a health savings account (HDHP), or neither (PPO or POS). will also be available for a limited time. For details on it (including licensing), click here. The next three rows of Table 2 show heterogeneity between outpatient, inpatient and pharmacy claims. A Cautionary Note on Tests of Overidentifying Restrictions. In addition, health-care prices are not necessarily determined by supply and demand. However, the publisher has asked for the customary Creative Commons attribution to the original publisher, authors, title, and book URI to be removed. Instead, we estimate short-run responses and summarize them in elasticities, recognizing that this may underrepresent the long run responsiveness, particularly for foreseeable spending. 1 (2005): 185193, accessed March 14, 2011, http://www.pubmedcentral.nih.gov/articlerender.fcgi?artid=1356862. If you compare two similar individuals of the same age, one who is a smoker and the other a nonsmoker, then the mortality rate is significantly higher for the smoker. This content was accessible as of December 29, 2012, and it was downloaded then by Andy Schmitz in an effort to preserve the availability of this book.
In fact, there are good reasons to think that the supply-and-demand framework is not the best approach to this market. Making these types of choices is an economic decision. We therefore generated and examined appendix Figures A-1 for all spending and for our three broad categories of service. This paper develops a new IV approach for estimating demand responsiveness using big data and highly disaggregated types of service. There are other capital goods that enter the production function for the health sector. Another key characteristic of health care is that demand is relatively inelastic. We checked for but did not find any employers with annual plan enrollment periods other than the calendar year. The demand for health care is in part an expression of this preference. It also limits entry into the profession. They find a considerable demand response, even among sick people who should expect to exceed deductibles and face low end-of-year prices, suggesting that many people are myopic, and respond strongly to the spot prices at the time of care is received, and not only the more theoretically correct expected end-of-year price. Insurance companies provide additional sources of revenues to the hospital and a doctor. An official website of the United States government. It shows the considerable variation across months, across plan types, and across broad types of service. The new PMC design is here! We find the following. The Demand for Medical Care: What People Pay Does Matter. Even relatively recently, a procedure like this involved hospital stays, many days lost from work, and a significant risk of medical complications.For the history of hiatal hernia surgery, see Nicholas Stylopoulos and David W. Rattner, The History of Hiatal Hernia Surgery: From Bowditch to Laparoscopy, Annals of Surgery 241, no. The maximum amount an individual would be willing to pay to obtain one extra unit of that good. The .gov means its official. Due to informational problems for households, market power by suppliers, and government intervention, the market for health care cannot be analyzed by using standard supply-and-demand curves. Errors are corrected for clustering, assumed to be at the level of the employer-plan-year. More information is available on this project's attribution page. The Response of Drug Expenditure to Non-Linear Contract Design: Evidence from Medicare Part D. Einav Liran, Finkelstein Amy, Polyakova Maria.
Each diagram pools across all seven years and all the employers, and since we have a balanced sample with each person in all twelve months for each year in which they are in our analysis, sample means capture growth in spending over time. For example, a consumer in need of an MRI might not know the cost share for an MRI, but might deduce that it would be similar to the cost share of an X-ray, with both being part of outpatient care.
Of these, doctors offices are 36 percent. Our approach may nonetheless have some power, since even users of these services may have surprises about other types of spending that affect cost shares. This may reflect the current trend that most people getting professional mental health treatment are getting drugs only or receiving MH/SA treatment in primary care (McGuire, 2016), which is consistent with the low level of spending on specialty mental health care observed in our data. sharing sensitive information, make sure youre on a federal Everyone prefers being healthy to being sick.
This instability is a symptom of almost all of estimates of elasticities for relatively rare, inpatient-based services: elasticities are often implausibly large and generally imprecise. Moreover, since modern insurance plans incorporate highly specific benefit plan features in their designs, and these features can be customized for demographic, employment, or geographically-defined groups, understanding demand responses for disaggregated service types is of significant policy interest. Generally you are going to believe that the expert is acting in your best interests. Note: N = 170,963,286 individual months. Their goal is largely to provide a public service. Figure 16.3 "Two Explanations for Why Health Care in the United States Is More Expensive Than in Europe", Section 31.19 "Externalities and Public Goods", http://www.cdc.gov/nchs/nvss/mortality_tables.htm, http://en.wikipedia.org/wiki/Hippocratic_Oath, Table 16.1 "Employment in Health Services (in Millions)", http://www.cdc.gov/nchs/data/hus/hus07.pdf, http://www.science.org.au/nova/062/062key.htm, http://www.pubmedcentral.nih.gov/articlerender.fcgi?artid=1356862, Figure 16.4 "Payments to Hospitals and Doctors", http://www.cms.gov/apps/physician-fee-schedule/overview.aspx, http://www.cjonline.com/stories/102307/sta_211162036.shtml. Each IV regression includes individual*year fixed effects, 12 monthly time dummies and uses employer's average cost share for that service in that year*plan*family*month as an instrument. Knowing the value of the counterfactual cost share if the individual had positive spending is of considerable interest for studying the decision to seek care, yet there is little information about how such expectations are formed. Has this book helped you? This is particularly striking in the case of inpatient spending, where cost share imputations are nearly constant over time and shows very little variation across the year. Learn more Transportation, Communications, Utilities, Employers by level of average cost sharing. Scoggins John F, Weinberg Daniel A. Healthcare Coinsurance Elasticity Coefficient Estimation Using Monthly Cross-sectional, Time-series Claims Data. ), service occupations (assistants, cooks, cleaners, etc. The horizontal axis plots intervals of prospective DxCG relative risk scores (RRS) for each person based on prior-year diagnostic information. The ownership of hospitals is also complicated. In 2006, 40 percent of health-care workers were employed in hospitals. Perhaps you already have a sense of why: we have a large group of consumers with very inelastic demand who are relatively uninformed. It is this presumption that allows us to develop our theory of supply.
A leading example is the vast array of drugs now available on the market, which is the outgrowth both of research and development at pharmaceutical companies and of publically funded research. Hourly, non-union employees are less responsive than other salary classes. Government decisions determine the demand for health-care services. Unlike your demand for many other goods, your demand for health services is influenced by the costs of health insurance. There will typically be considerable variation of wages within a sector because of the different occupations of workers in that sector. From the table, we see that the number of workers in this industry has increased from 12.2 million in 2000 to about 14.4 million in 2006. So too is the capital stock of companies that produce the machines, such as MRIs, used in doctors offices and hospitals.
Health care is an example of a good for which the typical individual is unable to determine the quality of what is being purchased. Barbara Martinez, Cash before Chemo: Hospitals Get Tough. Instruments, Randomization, and Learning about Development. Our dependent variables in model (2) are characterized by a significant fraction of zero spending and a long right tail, a well-known feature of health care spending data. Brot-Goldberg Zarek C, Chandra Amitabh, Handel Benjamin R, Kolstad Jonathan T. What Does a Deductible Do? Suppose you learned that a small group of lobbyists in your hometown wanted gas station owners to be licensed in the same way as physicians. The patient was looking for treatment at a not-for-profit hospital in Texas. You might be very skeptical, suspecting that they have other reasons for wanting you to buy. This large panel enables us to estimate own-price demand elasticities not only for common, but also for relatively rare health care services, as well as for various employee and population subgroups. Together, these mean that our traditional approach to demand does not work very well for health-care services. And those features mean that there are several reasons why we might expect inefficiency. But why do we trust medical experts so much more than the provider of stock tips? For example, individuals working in diagnostic laboratories earn, on average, close to twice the wage of workers in nursing homes. Here we make the assumption that consumers expect that the cost share for their first visit will be the average of the health plans cost share for all other consumers in their first month of seeking care. It also reimburses your doctor directly. Specifically, for the backward myopic price, we assign to individuals the average January cost share of those working for the same employer and under the same plan in that year.3. For this paper we estimate instead the following much simpler specification. If you are in the city, you can also walk into a hotel and find out the price and the hotels amenities. It means that all else being the same, smoking increases the probabilityThe percentage chance that an outcome will occur. To understand why, imagine you want to book a hotel room in New York City. Eichner (1998) proposes a novel instrument for within-year price variation: the occurrence of accidental injuries (e.g., a broken leg) by dependents as an exogenous event that changes subsequent cost sharing and hence affects the employees own demand for medical care. For example, there is a website that allows you to find charges for different procedures in Wisconsin (http://www.wipricepoint.org). If the supply curve in the United States lies further to the left than the supply curve in Europe (part [b] of Figure 16.3 "Two Explanations for Why Health Care in the United States Is More Expensive Than in Europe"), then this also would implyall else being equalhigher prices for health care in the United States. If you enter a hospital, say, for an operation, the amount of money the insurance company will pay the hospital is set by an existing agreement. Demand elasticities also vary modestly by enrollee age, risk scores, time, single versus family coverage, salary versus hourly wage earners, industry, firm size, and firm level average costing. iy =i +efpy +c +y. Note: Table shows the unconditional estimated demand coefficients for all services and for three broad types of services by industry, salary class, and employer quartiles of costs share. We find that results are not very different from our initial specification and choose to keep the log model as our preferred specification due to its simplicity. For example, if the demand curve is further to the right in the United States compared to Europe (part [a] of Figure 16.3 "Two Explanations for Why Health Care in the United States Is More Expensive Than in Europe"), this impliesall else being equalhigher prices in the United States. Manning et al. Furthermore, if people need health-care services, then their demand is likely to be very inelastic (the quantity demanded does not respond much to price changes). 2RAND researchers Keeler and Rolph (1988) conclude: Despite our earlier economic model of the effects of deductibles people do not appear to change the timing of medical purchases to reduce costs The myopic and inflexible behavior of participants in the experiment may be another instance of bounded rationality people may not have the energy or inclination to think about their future insurance status or experience in taking advantage of these temporary changes in price.. To become a doctor, you must first succeed as an undergraduate and then go through multiple years in medical school. Most people with spending on these types of service are likely to be associated with high annual spending, and thus exceed any reasonable deductible or stoploss, and face very little price variation. It is not surprising that the mortality rate increases with agethat is, that young people have a lower probability of dying than older people. Some are private, while others are public, meaning that federal, state, or even county governments run them. How much of that cost is reimbursed depends on your insurance policy. There is a large literature that has estimated elasticities from such natural experiments. Demand response is lower for children, in larger firms, among hourly waged employees, and for sicker people.
A good that is both nonrival and nonexcludable: it can be provided to many users without excluding anyone. Demand is less responsive in firms with over 200,000 employees than in firms with 5,000 to 49,999. We consider two mechanisms of expectations, which likely provide upper and lower bounds on the relevant spot prices. Additionally, per the publisher's request, their name has been removed in some passages. This does not mean that we can get no insights from supply-and-demand reasoning. about navigating our updated article layout. Productivity. Journal of Business & Economic Statistics. 5We also conducted overidentification tests for our models, using as instruments the cost shares of inpatient, outpatient and pharmacy services, as well as the cost share specific for each type of service. Brot-Goldberg et al. As a result, hospital administrators face a complex set of repayment schedules. Economists often talk of output being produced using a production function that uses labor, capital, and intermediate inputs. (2015) provide three rationales for why consumers may appear myopic: they may suffer from extreme present bias and ignore future prices; they may suffer from behavioral biases and not understand the nonlinear budget set; or they may be liquidity constrained. This makes sense: you would not want anyone to advertise as a doctor regardless of their skill level. An article describes this technique at NOVA, The Picture Becomes Clear for Magnetic Resonance Imaging, accessed March 15, 2011, For the history of hiatal hernia surgery, see Nicholas Stylopoulos and David W. Rattner, The History of Hiatal Hernia Surgery: From Bowditch to Laparoscopy,. Since estimated elasticities are sensitive to the average cost shares in each subgroup, which can vary dramatically, we present here only the estimates of the demand curve coefficients on all subgroups, making them comparable. Here the highest value RRS correspond to being seven times the average spending, while the lowest RRS interval is .1, which is only 10 percent of the population average. Indeed, since the average cost sharing in HMOs is nearly constant from the beginning to the end of the year, the variation is nearly zero, making the imputations very close to the actual values. There are too many different markets, each with its own peculiarities and unusual features. Hence if consumers first actual visit with a given type of service happens in March, then we use the actual cost share paid in March for that service as the price for all months January through March. There are many behaviors that have predictable effects on our likelihood of dying. Federal government websites often end in .gov or .mil. To complete this model, we again need to model expectations for consumers who never make a visit. It is much harder to get information about prices, and you cannot simply walk in off the street and purchase an operation. Although the forward myopic consumer is more forward looking than the backward myopic consumer, both are myopic in that they are not forecasting ahead to the end-of-the-year price and instead are using a monthly spot price. Consider passing it on: Creative Commons supports free culture from music to education. This book is licensed under a Creative Commons by-nc-sa 3.0 license. The household has an incentive to purchase a lot of health-care services because its purchases are, in effect, being subsidized by insurance companies. Table 4 shows the results by various employment-related groups. Wall Street Journal, April 28, 2008, A1. Intermediate inputs in a hospital include dressings for wounds, and pharmaceutical products, such as anesthetics used for operations. Furthermore, the Least Information Maximum Likelihood estimator which is less biased than two-stages-least squares - also gives similar results to our main specification. In most countries, you must have a license to practice medicine. A notable challenge when estimating price elasticities of demand for health care is to control for endogeneity of prices stemming from endogenous health plan choice. Our instrument does not rely on any detailed characteristics of health plans, such as the actual value of deductibles, copayments, and coinsurance rates, which makes it a useful instrument for large claims data with few employer, plan, geographic, household, or individual level variables. Table 2 presents the IV results from estimating model (2) on overall spending, on three broad categories of service (outpatient, inpatient, and prescription drugs), and on 22 finer, not mutually exhaustive, categories of spending, using employer mean cost shares for a month as the instrument. But the modestly downward slope for the employer mean actual cost share suggests that overall there is only a weak correlation between our instrument and the average health status of enrollees: The slight downward slope does suggest that enrollees who are sicker tend to work at firms that on average have more generous coverage, so that their average cost share is slightly lower than the population average. 4The log linear specification has the added advantage of estimating a nonlinear demand curve in which the proportional reduction in demand as the cost share is increased by a fixed amount becomes progressively smaller. Since including individual-year fixed effects controls for all of the individual characteristics that do not vary within the year, we are, in fact, controlling for factors such as age, gender, risk scores, MSA, plans and any other variables that are fixed within a year. Given that we rely on a very large number of individual-year fixed effects for identification, non-linear models such as logit or selection models are unattractive or infeasible. We take up the topic of health insurance later in this chapter. Each IV regression includes individual*year fixed effects and 12 monthly time dummies and uses employer's average cost share for that service in that year*plan*family*month as an instrument for the myopic cost share. This practice of requiring prepayment is part of a trend in the industry. Another way to describe the industry is by detailing the number of workers employed in different activities, as in Table 16.1 "Employment in Health Services (in Millions)". US Department of Labor, Bureau of Labor Statistics, Career Guide to Industries, 201011 Edition: Healthcare, accessed March 14, 2011. The highest elasticities are for pharmaceuticals (0.44), specialty visits (0.32), and spending on mental health/substance abuse (0.26), and the lowest elasticities are for prevention visits (0.02), emergency rooms (0.04) and mammogram (0.11). (1987) estimated health care demand responses using RCT data from the RAND Health Insurance Experiment (HIE) conducted in the mid-1970s, with path-breaking results, but the HIE sample size of 6000 individuals limited its ability to generate estimates of demand response other than for broad categories of services and large subpopulations. All dollar amounts were converted into December 2014 dollars by dividing by the appropriate monthly personal consumption expenditure (PCE) deflator for health care costs from the US Bureau of Economic Analysis. One reason is that consumers are myopic, and fail to forecast how their current spending affects future prices. Table 1 helps identify the services with very low rates of positive spending but high conditional spending: home visits, dialysis, and inpatient surgical procedures are examples of this with high standard errors. Women are particularly prevalent in nursing care facilities: of the 1.6 million workers in nursing care facilities in 2000, about 1.4 million were women. (2017) which focused on changes in demand from a firm that significantly raised its deductibles, and found relatively large demand elasticities.
One of the costs of poor health is lost days at work. Since no further spending occurs for the remainder of the year, this same rate is also used as the forward myopic price through the end of the year. (2013) reestimation using the HIE data, which is 0.5.
Spending on health care today has an effect on your health status in the future. In addition, hospitals contain an immense quantity of other capital goods, such as hospital beds and diagnostic toolseverything from stethoscopes to x-ray machines. For observations in which monthly spending by an individual is positive, we define the cost share as the ratio between out-of-pocket spending and total spending. Einav et al. As a service to our customers we are providing this early version of the manuscript. where If consumers are diagnosed with condition 123 at different times in the year, and face changing cost shares over time, then our approach can be used to generate a reasonable instrument for assessing the effectiveness of each of these procedures, tests, or drugs for treating condition 123. In the case of health, these are the doctors, dentists, and other health professionals who are trained to analyze our health situation and make suggestions to us. Let us think about the demand side first. We also control for seasonality and time trends using monthly dummies. We discuss below our approach for assigning service specific cost shares (i.e. from one more unit equals the price of that additional unit.Chapter 4 "Everyday Decisions" explains this idea in more detail. Mortality. Einav et al. Results are presented in Table A-4. Thus there are differences across states. Some way of reflecting price expectations is needed to fill in all of the missing prices. What factors determine the price and quantity of health care? In March, this individual obtains care and pays only 75% of the cost, so this new lower cost share is used from April through September. The views expressed here are the authors own and not necessarily those of the NIMH. This last finding about pharmacy has implications for the work of Brot-Goldberg et al. To illustrate our method, we estimate elasticities for both for broad categories of services (inpatient, outpatient, and pharmacy) as well as for a variety of non-exhaustive specialized types of service (for example, ER, chiropractic, MRIs, PET scans, ambulance).
