SELECTED FOR YOU... JANUARY 2013:
working papers

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WORKING PAPERS

Health Care Insurance

Social Insurance: Connecting Theory to Data.

Chetty R., Finkelstein A. (2012).
Cambridge : NBER

We survey the literature on social insurance, focusing on recent work that has connected theory to evidence to make quantitative statements about welfare and optimal policy. Our review contains two parts. We first discuss motives for government intervention in private insurance markets, focusing primarily on selection. We review the original theoretical arguments for government intervention in the presence of adverse selection, and describe how recent work has refined and challenged the conclusions drawn from early theoretical models. We then describe empirical work that tests for selection in insurance markets, documents the welfare costs of this selection, and analyzes the welfare consequences of potential public policy interventions. In the second part of the paper, we review work on optimal social insurance policies, which are designed to maximize expected utility taking into account the costs of moral hazard. We discuss formulas for the optimal level of insurance benefits in terms of empirically estimable parameters. We then consider the consequences of relaxing the key assumptions underlying these formulas, e.g. by allowing for fiscal externalities or behavioral biases. We also summarize recent work on other dimensions of optimal policy, including mandated savings accounts and the optimal path of benefits. Finally, we discuss the key challenges that remain in understanding the optimal design of social insurance policies.

Behavioral Hazard in Health Insurance.

Baicker C., Mullainathan S., Schwartzstein J. (2012).
Cambridge : NBER

This paper develops a model of health insurance that incorporates behavioral biases. In the traditional model, people who are insured overuse low value medical care because of moral hazard. There is ample evidence, though, of a different inefficiency: people underuse high value medical care because they make mistakes. Such "behavioral hazard" changes the fundamental tradeoff between insurance and incentives. With only moral hazard, raising copays increases the efficiency of demand by ameliorating overuse. With the addition of behavioral hazard, raising copays may reduce efficiency by exaggerating underuse. This means that estimating the demand response is no longer enough for setting optimal copays; the health response needs to be considered as well. This provides a theoretical foundation for value-based insurance design: for some high value treatments, for example, copays should be zero (or even negative). Empirically, this reinterpretation of demand proves important, since high value care is often as elastic as low value care. For example, calibration using data from a field experiment suggests that omitting behavioral hazard leads to welfare estimates that can be both wrong in sign and off by an order of magnitude. Optimally designed insurance can thus increase health care efficiency as well as provide financial protection, suggesting the potential for market failure when private insurers are not fully incentivized to counteract behavioral biases.

Cost Effectiveness Analysis and the Design of Cost-Sharing in Insurance: Solving a Puzzle.

Pauly M. (2012).
Cambridge : NBER

The conventional model for the use of cost effectiveness analysis for health programs involves determining whether the cost per unit of effective- ness of the program is better than some socially determined maximum acceptable cost per unit of effectiveness. If a program is better, the policy implication is that it should be implemented by full coverage of its cost by insurance; if not, no coverage should be provided and the program should not be implemented. This paper examines the unanswered question of how cost effectiveness analysis should be performed and interpreted when insurance coverage can involve non-negligible cost sharing. It explores both the question of how cost effectiveness is affected by the presence of cost sharing, and the more fundamental question of cost effectiveness when cost sharing is itself set at the cost effective level. Both a benchmark model where only “societal” preferences (embodied in a threshold value of dollars per unit of health) matter and a model where individual willingness to pay can be combined with societal values are considered. A common view that cost sharing should vary inversely with program cost effectiveness is shown to be incorrect. A key issue in correct analysis is whether there is heterogeneit- y either in marginal effectiveness of care or marginal values of care that cannot be perceived by the social planner but is known by the demander. The cost effectiveness of a program is shown to depend upon the level of cost sharing; it is possible that some programs that would fail the social test at both zero coverage and full coverage will be acceptable with positive cost sharing. Combining individual and social preferences affects both the choice of programs and the extent of cost sharing.

Health Economics

Non-linear price schedules, demand for health care and response behavior.

Farbmacher H., Winter J. (2012).
Londres : University of York

When health insurance reforms involve non-linear price schedules tied to payment periods (for example, a quarter or a year), the empirical analysis of its effects has to take the within-period time structure of incentives into account. The analysis is further complicated when demand data are obtained from a survey in which the reporting period does not coincide with the payment period. We illustrate these issues using as an example a health care reform in Germany which imposed a perquarter fee of 10 euros for doctor visits and additionally set an out-of-pocket maximum. This co-payment structure results in an effective 'spot' price for a doctor visit which decreases over time within each payment period. Using this variation, we find a substantial effect of the new fee, in contrast to earlier studies of this reform. Overall, the probability of visiting a physician decreased by around 2.5 percentage points in response to the new fee for doctor visits. We verify the key assumptions of our approach using a separate data set of insurance claims in which the reporting period effects are absent by construction.

Health Status

The power of beliefs: Evidence on the influence of trust on self-assessed health.

Ljunge M. (2012).
Copenhague : University of Copenhagen

This paper estimates the influence of trust on self-assessed health. Second generation immigrants in a broad set of European countries with ancestry from across the world are studied. There is a significant positive effect of trust on self-assessed health. Health has both intrinsic and instrumental value. The finding provides evidence for one mechanism through which trust creates desirable outcomes. Individuals with high trust feel healthier. As health may promote a more productive life, it may be one channel through which trust increases national income. The results suggest policy put more emphasis on promoting social trust.

Hospital

Spatial Disparities in Hospital Performance.

Gobillon L., Milcent C. (2012).
Bonn : IZA

Using a French exhaustive dataset, this paper studies the determinants of regional disparities in mortality for patients admitted to hospitals for a heart attack. These disparities are large, with an 80% difference in the propensity to die within 15 days between extreme regions. They may reflect spatial differences in patient characteristics, treatments, hospital characteristics, and local healthcare market structure. To distinguish between these factors, we estimate a flexible duration model. The estimated model is aggregated at the regional level and a spatial variance analysis is conducted. We find that spatial differences in the use of innovative treatments play a major role whereas the local composition of hospitals by ownership does not have any noticeable effect. Moreover, the higher the local concentration of patients in a few large hospitals rather than many small ones, the lower the mortality. Regional unobserved effects account for around 20% of spatial disparities.

Hospital readmission rates: signal of failure or success?

Laudicella M., Li D.P., Smith P.C. (2012).
Londres : Imperial college Business school

Hospital readmission rates are increasingly being used as signals of hospital performance and a basis for hospital reimbursement. However for some interventions their interpretation may be complicated by different- ial patient survival rates after the initial intervention. If patient characteristics are not perfectly observable and hospitals differ in their mortality rates, then hospitals with low mortality rates are likely to have a larger share of un-observably sicker patients at risk of a readmission. Their performance on readmissions with respect to other hospitals will then be underestimated. We therefore examine hospitals- ' performance on readmission rates relaxing the assumption of independence between the data generating process for mortality and readmissions implicitly adopted in the vast majority of empirical applications. We use administrative data on emergency admissions for fractured hip in 290,000 patients aged 65 and over from 2003-2008 in England. We find strong evidence of sample selection bias in the identification of hospitals' performance on 28 days emergency readmissions when the residual correlation between mortality and readmissions is ignored. We use a bivariate sample selection model to allow for the selection process and the dichotomous nature of the outcome variables. Our study suggests that when, as in this example, the residual correlation is different from zero, inference from traditional models of hospital performance on readmissions might be invalid, and we offer a more appropria- te method of inferring performance. The results have important implications for performance assessment and financial penalties related to readmissions.

Hospital Capacity, Waiting Times and Sick Leave Duration - an Empirical Analysis of a Norwegian Health Policy Reform.

Aakvik A., Holmas T.H., Kjerstad E. (2012).
University of Bergen

A health policy reform aiming to reduce hospital waiting times and sickness absences, the Faster Return to Work (FRW) scheme, is evaluated by creating treatment and control groups to facilitate causal interpretations of the empirical results. We use a unique dataset on individuals where we match hospital data with social security data and socio-economic characteristics. The main idea behind the reform is that long waiting times for hospital treatment lead to unnecessarily long periods of sick leave. We find that the waiting period for treatment or consultation for FRW patients is 12–15 days shorter than for people on sick leave on the regular waiting list. This reduction is only partially transformed into a reduction in the total length of sick leave. On average, the reduction is approximately eight days. There is a significant difference between surgical and non-surgical patients.

Social Health Inequalities

Assessing inequalities in preventive care use in Europe: A special case of health-care inequalities?

Carrieri V., Wuebker A. (2012).
Londres : University of York

This paper presents the first cross-country estimation of needs-adjusted income and education-related inequalities in the use of a whole set of preventive care treatments. Analysis is based on the last three waves of the Survey of Health, Ageing and Retirement (SHARE) for individual- s aged 50 and over living in 13 European countries. We employ alternative concentration indices based on the CI-corrections for binary outcomes to compute inequalities in the use of breast cancer screening, of colorectal cancer screening, of influenza vaccination, and of routine prevention tests, such as blood pressure, cholesterol, and blood sugar tests. After controlling for needs, we find that in many European countries strong pro-rich and educational inequalities exist with respect to breast cancer screening, cholesterol and blood sugar tests. Furthermore, we find that poor and less educated people are more likely than the better off to use preventive care late, e.g. when health shocks occurred or health problems display already symptoms. Finally, results suggest that access to treatments within a specialist setting is generally less equal than access to treatments provided within a GP setting. Equity implications of the results are then discussed according to different possible theories of distributive justice in health care delivery.

Addressing Inequalities in Regions: Literature review - Final report.

Leleu H., Jusot F., Bourgueil Y. (2010).
S.l. : AIR Project - Addressing Health Inequalities Interventions in Regions

Socio-economic health inequalities are widening in Europe. Persons from low-socio economic groups die younger. They also have beneficiated less than high socio-economic groups of the mortality decline in the 80s and 90s. Several European projects, including Eurothine and Determine , have attempted to collect evidence on actions to reduce health inequalities. Similarly, the AIR project, Addressing Inequalities in Region, is aimed at providing evidence for policy makers on how to reduce socio-economic health inequalities. However, the AIR project focuses only on interventions in the primary care setting. The first part of the project is a systematic litterature review of international and national academic literature on evaluated interventions in primary care to reduce socio-economic health inequalities. Articles selected in the review had to describe a primary care intervention defined as either an action on a primary care service (i.e. access to care and prevention for common disease, maternal care…) or on a health care organization associated with primary care (i.e. first contact, comprehensive, coordinated care…). It also had to report health outcome or process measures comparing socio-economic groups or for a particular socio-economic groups, defined by either ethnicity, income or education.. The following databases were search between January 2000 and January 2010: Medline, Cochrane, Health Policy Monitor, Nber.

Health, Human Capital Formation and Knowledge Production: Two Centuries of International Evidence.

Madsen J. (2012).
Cambridge : NBER

Recent medical research shows that health is highly influential for learning and the ability to think laterally; however, past economic studies have failed to empirically examine the influence of health on learning, schooling, and ideas production; the main drivers of growth in endogenous growth models. This paper constructs a measure of health-adjusted educational attainment among the working age population based on their health status during the time they did their education. Using annual data for 21 OECD countries over the past two centuries it is shown that health has been highly influential for the quantity and quality of schooling, innovations and growth.

Drugs

Cost-containment policies in public pharmaceutical spending in the EU.

Carone G., Schwierz G., Xavier A. (2012).
Münich : MRPA

This paper presents and evaluates pharmaceutical policies in the EU aimed at the rational use of medicines and at keeping pharmaceutical spending under control. Policy makers are growing more aware that by regulating pharmaceutical markets correctly, considerable savings can be achieved without compromising the quality of care. Specifically, the paper makes the case that, by following numerous best-practices in pharmaceutical sector regulations, the value for money of pharmaceutical consumption could be substantially increased. Appropriate regulations can be relevant for pricing, reimbursement, market entry and expenditure control, as well as specific policies targeted at the distribution chain, physicians and patients.

Foreign Health Care System

Classifying OECD healthcare systems: A deductive approach.

Bohm K., Schmid A., Gotze R. (2012).
Breme : University of Bremen

This paper is a first attempt to classify 30 OECD healthcare systems according to a typology developed by Rothgang et al. (2005) and elaborated by Wendt et al. (2009). The typology follows a deductive approach. It distinguishes three core dimensions of the healthcare system: regulation- , financing, and service provision. Moreover, three types of actors are identified based on long-standing concepts in social research: the state, societal actors, and market participants. Uniform or ideal-type combinations unfold if all dimensions are dominated by the same actor, either belonging to the state, society, or the market. Further, we argue, there is a hierarchical relationship between the dimensions of the healthcare system, led by regulation, followed by financing, and last service provision, where the superior dimension restricts the nature of the subordinate dimensions. This hierarchy limits the number of theoretically plausible healthcare system types within the logic of the deductive typology. The classification of 30 countries according to their most recent institutional setting results in five healthcare system types: the National Health Service, the National Health Insurance, the Social Health Insurance, the Etatist Social Health Insurance, and the Private Health System. Of particular relevance are the National Health Insurance and the Etatist Social Health Insurance both of which include countries that have often provoked caveats when allocated to a specific family of healthcare systems. Moreover, Slovenia stands out as a special case. The findings are discussed with respect to alternative taxonomies, explanatory factors for the position of single countries and most likely trends.

Measuring Success: A Framework for Benchmarking Health Care System Performance.

Rao S., Lye J., Astles P. (2012).
Ottawa : The Conference Board of Canada.

This report provides a foundation for the forthcoming provincial and international health care system benchmarking reports. It proposes a framework to guide the upcoming Canadian provincial benchmarking report, including a full description of the performance indicators, the rationale for their inclusion, and the ranking methodology. Nine Canadian and six international health benchmarking reports were examined in defining this methodology. The framework was developed in consultation with a technical advisory group, and a workshop was held with stakeholders from the health community in April 2012 to solicit feedback.

Work and Health

Collateral effects of a pension reform in France.

Blake H., Garouste C. (2012).
Londres : University of York

How does the retirement age affect the physical and mental health of seniors? We identify this effect based on the 1993 reform of the French pension system, which was heterogeneously introduced among the population. The French government gradually increased the incentive to work using two tools: the contribution period required for entitlement to a full pension and the number of reference earning years taken to calculate pensions. This created heterogeneity of incentives to work among the population. We use a unique database on health and employment in France in 1999 and 2005, when the cohorts affected by the reform started to retire. Taking the reform as a tool to filter out the potential influence of health on employment choices, we show that retirement improves physical and social health. The more physically impacted are the low-educated individuals. Subsequently, a difference-indifferences approach among the working population, with the control group comprising public sector employees (not concerned by the 1993 reform), finds that the people more affected by the reform, and hence with a stronger incentive to work, were those posting less of an improvement and even a deterioration in their health between 1999 and 2005.

Life Expectancy, Labor Supply, and Long-Run Growth: Reconciling Theory and Evidence.

Strulik H., Werner K. (2012).
Göttingen : Center for European Governance and Economic Development Research. (C.E.G.E.)

This study sets up a simple overlapping generation model that allows to distinguish between life expectancy and active life expectancy. It shows that individuals optimally adjust to a longer active life by educating more and, if the labor supply elasticity is high enough, by supplying less labor. When calibrated to US data the model explains the historical evolution of increasing education and declining labor supply (of cohorts born 1850-1950) as an optimal response to increasing active life expectancy. It integrates the theory into a unified growth model and reestablish increasing life expectancy as an engine of long-run economic development.

Ageing

Workplace Characteristics and Employment of Older Workers.

Juhn C., Mcue C. (2012).
Washington : US Census

As aging of the U.S. population places increased demands on public programs such as Social Security, an important question is how long older Americans are willing and able to work before they retire from the labor force. While studies based on household surveys have provided information on the role of savings, health status, pension and health insurance coverage, there is relatively little information on how workplace and employer characteristics affect the employment of older workers. In this study we use linked employer-employee data to explore the relations- hip between the characteristics of jobs held at age 55 and early retirement- . We focus on a sample of 63-year-olds drawn from the 2005-2008 American Community Survey. We match this sample to information on their earnings, employment, employers and coworkers drawn from the Longitudinal Employer-Ho- usehold Dynamics data for the years in which they age from 55 to 63. We u se employment status as reported in the ACS to split the sample into those who have retired by age 63 and those who continue to work. We then examine differences between early retirees and continuing workers in the characteristics of their employment at age 55, and at how these characteristics change as they approach age 63. We find that early retirees are more likely to be employed by larger employers at age 55 than are continuers. They work for employers with somewhat higher pay than do continuers, and are less likely to have young coworkers.

Self-Rated Health Status of the Japanese and Europeans in Later Life: Evidence from JSTAR and SHARE.

Fujii M., Oshio T., Shimizutani S. (2012).
Tokyo : Research Institute of Economy, Trade and Industry

Using panel data from two surveys in Japan and Europe, we examine the comparability of the self-rated health (SRH) of the middle-aged and elderly across Japan and the European countries and the survey periods. We find that a person's own health is evaluated on different standards (thresholds) across the different countries and survey waves. When evaluated on common thresholds, the Japanese elderly are found to be healthier than their counterparts in the European countries. At the individual level, reporting biases leading to discrepancies between the changes in individuals' SRH and their actual health over the survey waves are associated with age, education, and country of residence.

Work ‘Til You Drop: Short- and Longer-Term Health Effects of Retirement in Europe.

Sahlgren G.H. (2012).
Stockholm : Research Institute of Industrial Economics

Declining fertility rates and increasing life expectancy necessitate a higher labor participation rate among older people in order to sustain pension systems and boost economic growth. At the same time, researchers have only recently begun to pay attention to the health effects of a longer working life, with rather mixed results thus far. Utilizing panel data from eleven European countries, and two distinct identification strategies to deal with endogeneity, we provide new evidence of the health effects of retirement. In contrast to prior research, we analyze both the impact of being retired and the effect of spending longer time in retirement. Using spouses' characteristics as instruments, while taking precautions to ensure validity, we find a robust, negative impact of being retired and spending longer time in retirement on self-asse- ssed, general, mental and physical health. In addition, we show that the impact on self-assessed health remains similar in models using instruments from previous research while also including individual- and time-fixed effects to remove time-invariant unobserved heterogeneity between individuals as well as common health shocks. Overall, the results suggest that this innovation and the fact that we take lagged effects into account explain the differences in comparison to prior multi-country research using these instruments. While the short-term health impact of retirement in Europe remains uncertain, the medium- to long-term effects appear to be negative and economically large.

The dynamics of ageing: Evidence from the English Longitudinal Study of Ageing 2002-10 (Wave 5).

(2012).
Londres : Institute of Fiscal Studies.

The English Longitudinal Study of Ageing is a multidisciplinary study of a representative sample of men and women aged 50 years and over living in England. This report launches the fifth wave of data collection, carried out in 2010-11. ELSA was designed to understand the unfolding dynamics of ageing and the relationships between economic circumstances, social and psychological factors, health, cognitive function and biology as people move through retirement into older age. The sample first assessed in 2002 included more than 11,000 participants, and they have been restudied every two years since then. The data from ELSA are used widely by academic scholars and policymakers interested in this critical period of life, since the study provides crucial evidence that is relevant to decision-making in the arena of public policy and to research in economics, health, biology and social sciences. The wealth of information spanning eight years in the ELSA cohort is not possible to cover in detail in a single publication. This report therefore focuses on in-depth analyses of three issues of current scientific and policy importance: - Pension wealth and contribution dynamics - Social detachment - Health and well-being In addition, the report includes an extensive and detailed set of tables describing results in the economics, social and health domains, summarising other important measures collected in ELSA from both a cross-sectional and longitudinal perpective.