nep-hea New Economics Papers
on Health Economics
Issue of 2005‒12‒09
fourteen papers chosen by
Yong Yin
SUNY at Buffalo, USA

  1. Extending Choice In English Health Care: The implications of the economic evidence By Carol Propper; Deborah Wilson; Simon Burgess
  2. Social Health Insurance - the Major Driver of Unsustainable Fiscal Policy? By Christian Hagist; Norbert Klusen; Andreas Plate; Bernd Raffelhüschen
  3. Competitive occupational choices with endogenous health risks By Alberto Bennardo; Salvatore Piccolo
  4. Urban Air Quality and Human Health in Latin America and the Caribbean By Luis A. Cifuentes; Alan J. Krupnick; Raúl O'Ryan; Michael A. Toman
  5. HIV/AIDS Pandemic in Africa: Trends and Challenges By Livingstone S. Luboobi; Joseph Y.T. Mugisha
  6. Urban Environmental Health and Sensitive Populations: How Much are the Italians Willing to Pay to Reduce Their Risks? By Anna Alberini; Aline Chiabai
  7. Returning to Work from Injury: Longitudinal Evidence on Employment and Earnings By Sarah Crichton; Steven Stillman; Dean Hyslop
  8. Who Benefits from New Medical Technologies? Estimates of Consumer and Producer Surpluses for HIV/AIDS Drugs By Tomas J. Philipson; Anupam B. Jena
  9. Aching to Retire? The Rise in the Full Retirement Age and its Impact on the Disability Rolls By Mark Duggan; Perry Singleton; Jae Song
  10. Medical Expenditure Risk and Household Portfolio Choice By Dana Goldman; Nicole Maestas
  11. The Welfare Effects of Restricted Hospital Choice in the US Medical Care Market By Katherine Ho
  12. Insurer-Provider Networks in the Medical Care Market By Katherine Ho
  13. Technological Advance and the Growth in Healthcare Spending By Richard M. H. Suen
  14. Surplus Appropriation from R&D and Health Care Technology Assessment Procedures By Tomas J. Philipson; Anupam B. Jena

  1. By: Carol Propper; Deborah Wilson; Simon Burgess
    Abstract: Extending choice in health care is currently popular amongst English, and other, politicians. Those promoting choice make an appeal to a simple economic argument. Competitive pressure helps make private firms more efficient and consumer choice acts as a major driver for efficiency. Giving service users the ability to choose applies competitive pressure to health care providers and, analogously with private markets, they will raise their game to attract business. The paper subjects this assumption to the scrutiny provided by a review of the theoretical and empirical economic evidence on choice in health care. The review considers several interlocking aspects of the current English choice policy: competition between hospitals, the responsiveness of patients to greater choice, the provision of information and the use of fixed prices. The paper concludes that there is neither strong theoretical nor empirical support for competition, but that there are cases where competition has improved outcomes. The paper ends with a discussion of the implications of this literature for policies to promote competition in the English NHS.
    Keywords: competition, choice, health care, English NHS reforms
    JEL: I11 I18
    Date: 2005–08
  2. By: Christian Hagist; Norbert Klusen; Andreas Plate; Bernd Raffelhüschen
    Abstract: During the next decades the populations of most developed countries will grow older as a result of the low level of birth rates since the 1970s and/or the continuously increasing life expectancy. We show within a Generational Accounting framework how unsustainable the public finances of France, Germany, Switzerland and the U.S. are, given their demographic developments. Thereby our focus lies on social health insurance systems that are in addition affected by medical-technical progress. Due to the cost-increasing effect of medical-technical progress one can justifiably say that social health insurance schemes are the major drivers behind unsustainable fiscal policies.
    JEL: H51 I11
    Date: 2005
  3. By: Alberto Bennardo; Salvatore Piccolo
    Date: 2005–07–15
  4. By: Luis A. Cifuentes; Alan J. Krupnick; Raúl O'Ryan; Michael A. Toman
    Abstract: This working paper is being published with the objective of contributing to the debate on a topic of importance to the region, and to elicit comments and suggestions from interested parties. This paper has not undergone consideration by the SDS Management Team. As such, it does not reflect the official position of the Inter-American Development Bank.
    Date: 2005
  5. By: Livingstone S. Luboobi (Makerere University); Joseph Y.T. Mugisha (Makerere University)
    Abstract: Three-quarters of the world’s AIDS population lives in Sub-Saharan Africa; most have no access to lifesaving drugs, testing facilities or even basic preventative health care. One of the major factors inhibiting medical professionals in Africa from treating this disease is the inability to access vast areas of the continent with adequately equipped medical facilities. To meet this need, Architecture for Humanity challenged the world’s architects and health care professionals to submit designs for a mobile HIV/AIDS health clinic. The pandemic is changing the demographic structure of Africa and wiping out life expectancy gains. Indeed, in many African countries, life expectancy is dropping from more than 60 years to around 45 years or even less. In this paper, we highlight the uniqueness of factors associated with HIV/AIDS pandemic in Africa and present its impact and challenges.
    Keywords: HIV/AIDS, Africa
    JEL: I18 J11
    Date: 2005–09
  6. By: Anna Alberini (University of Maryland); Aline Chiabai (Fondazione Eni Enrico Mattei)
    Abstract: We use contingent valuation to elicit WTP for a reduction in the risk of dying for cardiovascular and respiratory causes, the most important causes of premature mortality associated with heat wave and air pollution, among the Italian public. The purpose of this study is three-fold. First, we obtain WTP and VSL figures that can be applied when estimating the benefits of heat advisories, other policies that reduce the mortality effects of extreme heat, and environmental policies that reduce the risk of dying for cardiovascular and respiratory causes. Second, our experimental study design allows us to examine the sensitivity of WTP to the size of the risk reduction. Third, we examine whether the WTP of populations that are especially sensitive to extreme heat and air pollution—such as the elderly, those in compromised health, and those living alone and/or physically impaired—is different from that of other individuals. We find that WTP, and hence the VSL, depends on the risk reduction, respondent age (via the baseline risk), and respondent health status. WTP increases with the size of the risk reduction, but is not strictly proportional to it. All else the same, older individuals are willing to pay less for a given risk reduction than younger individuals of comparable characteristics. Poor health, however, tends to raise WTP, so that the appropriate VSL of elderly individuals in poor health may be quite large. Our results support the notion that the VSL is “individuated.”
    Keywords: Contingent valuation, Willingness to Pay, Mortality risk reductions, Value of a Statistical life, Scope test, Cardiovascular and respiratory risks, Heat waves, Heat advisories, Adaptation to climate change, Air pollution, Premature mortality
    JEL: Q51 Q54
    Date: 2005–09
  7. By: Sarah Crichton (Statistics New Zealand and New Zealand Department of Labour); Steven Stillman (Statistics New Zealand, Motu Economic and Public Policy Research and IZA Bonn); Dean Hyslop (Statistics New Zealand and New Zealand Treasury)
    Abstract: New Zealand has a unique accident insurance system that pays the direct costs of all accidental injuries and compensates workers 80% of their earnings for any time post-injury that they are unable to work. Statistics New Zealand’s Linked Employer-Employee Database contains monthly information on earnings, welfare benefit income, and accident-related earnings compensation for all New Zealanders from 1999-2004. Using time receiving earnings compensation as a proxy for injury severity, we estimate the effect of injuries on employment and benefit rates, and total income by comparing the observed changes in outcomes for the injured population with matched ‘control’ groups of non-injured individuals. We find that injuries that result in more than 3 months of earnings compensation have negative effects on future labour market outcomes. For example, individuals who receive 4 months compensation have 2% lower employment rates and 6-8% lower monthly incomes 18 months after compensation ends compared with 18 months prior to being injured than comparable non-injured workers. The magnitude of these effects increase with injury duration; individuals who receive 10-12 months of compensation have 10-15% lower employment rates, 3-4% higher benefit receipt rates, and 14-22% lower monthly incomes. We also find evidence that longer-duration injuries have larger impacts on women, older workers, and workers with lower earnings or with less stable employment histories.
    Keywords: injury, program evaluation, matching, disability, New Zealand
    JEL: J28 C21 J24
    Date: 2005–11
  8. By: Tomas J. Philipson; Anupam B. Jena
    Abstract: The social value of an innovation is comprised of the value to consumers and the value to innovators. We estimate that for the HIV/AIDS therapies that entered the market from the late 1980's onwards, innovators appropriated only 5% of the social surplus arising from these new technologies. Despite the high annual costs of these drugs to patients, the low share of social surplus going to innovators raises concerns about advocating cost-effectiveness criteria that would further reduce this share, and hence further reduce incentives for innovation.
    JEL: I1
    Date: 2005–12
  9. By: Mark Duggan; Perry Singleton; Jae Song
    Abstract: In 1983 the federal government passed legislation that gradually increases the age at which individuals can receive full social security retirement benefits from 65 to 67 and reduces the generosity of benefits available at the early retirement age of 62. No corresponding changes were made to social security disability insurance (DI) benefits. This increase in the full retirement age will substantially increase individuals' financial incentives to apply for DI benefits. In this paper we use administrative data from the Social Security Administration to estimate the effect of this change on DI enrollment. Our findings indicate that the policy has contributed to the recent growth in the disability rolls with the effect concentrated among 63 and 64 year old men. When the policy is fully implemented, our estimates suggest that DI enrollment for this group of near elderly men will increase by 1.6 percentage points (13 percent). The overall effect would be modest, however, as it would account for just 1.3 percent of total DI enrollment and offset less than 4 percent of the estimated budgetary savings that will result from increasing the full retirement age.
    JEL: H53 H55 J21 J26
    Date: 2005–12
  10. By: Dana Goldman; Nicole Maestas
    Abstract: As health care costs continue to rise, medical expenses have become an increasingly important contributor to financial risk. Economic theory suggests that when background risk rises, individuals will reduce their exposure to other risks. This paper presents a test of this theory by examining the effect of medical expenditure risk on the willingness of elderly Medicare beneficiaries to hold risky assets. We measure exposure to medical expenditure risk by whether an individual is covered by supplemental insurance through Medigap, an employer, or a Medicare HMO. We account for the endogeneity of insurance choice by using county variation in Medigap prices and non-Medicare HMO market penetration. We find that having Medigap or an employer policy increases risky asset holding by 6 percentage points relative to those enrolled in only Medicare Parts A and B. HMO participation increases risky asset holding by 12 percentage points. Given that just 50 percent of our sample holds risky assets, these are economically sizable effects. It also suggests an important link between the availability and pricing of health insurance and the financial behavior of the elderly.
    JEL: I0
    Date: 2005–12
  11. By: Katherine Ho
    Abstract: Managed care health insurers in the US restrict their enrollees' choice of hospitals to within specific networks. This paper considers the implications of these restrictions. A three-step econometric model is used to predict consumer preferences over health plans conditional on the hospitals they offer. The results indicate that consumers place a positive and significant weight on their expected utility from the hospital network when choosing plans. A welfare analysis, assuming fixed prices, implies that restricting consumers' choice of hospitals leads to a loss to society of approximately $1 billion per year across the 43 US markets considered. This figure may be outweighed by the price reductions generated by the restriction.
    JEL: I0 I1
    Date: 2005–12
  12. By: Katherine Ho
    Abstract: Managed care health insurers in the US restrict their enrollees' choice of hospitals to specific networks. This paper investigates the causes and welfare effects of the observed hospital networks. A simple profit maximization model explains roughly 63 per cent of the observed contracts between insurers and hospitals. I estimate a model that includes an additional effect: hospitals that do not need to contract with all insurance plans to secure demand (for example, providers that are capacity constrained under a limited or selective network) may demand high prices that not all insurers are willing to pay. Hospitals can merge to form "systems" which may also affect bargaining between hospitals and insurance plans. The analysis estimates the expected division of profits between insurance plans and different types of hospitals using data on insurers' choices of network. Hospitals in systems are found to capture markups of approximately 19 per cent of revenues, in contrast to non-system, non-capacity constrained providers, whose markups are assumed to be about zero. System members also impose high penalties on plans that exclude their partners. Providers that are expected to be capacity constrained capture markups of about 14 per cent of revenues. I show that these high markups imply an incentive for hospitals to under-invest in capacity despite a median benefit to consumers of over $330,000 per new bed per year.
    JEL: I0
    Date: 2005–12
  13. By: Richard M. H. Suen (University of Rochester)
    Abstract: The second half of the twentieth century recorded a rapid growth in healthcare spending and a significant increase in life expectancy. This paper hypothesizes that technological progress in medical treatment, combined with rising incomes, are the driving forces behind these two trends. Using a stochastic, multi-period overlapping-generations model as the analytical vehicle, this paper shows that the rapid growth in medical spending is not driven by factors associated with market structures or insurance opportunities, but instead by factors underlying the production and accumulation of health. According to this model, improvements in medical treatment and rising incomes can explain all of the increase in medical spending and about 37% of the increase in life expectancy during the second half of the twentieth century.
    Keywords: Technological progress, life expectancy, medical spending, health
    JEL: E13 I12 O11 O33
    Date: 2005–11
  14. By: Tomas J. Philipson (University of Chicago); Anupam B. Jena (University of Chicago)
    Abstract: Given the rapid growth in health care spending that is often attributed to technological change, many private and public institutions are grappling with how to best assess and adopt new health care technologies. We argue that popular assessment criteria going under the rubric of “cost-effectiveness” often concern maximizing consumer surplus, which many times is consistent with maximizing static efficiency after an innovation has been developed. Dynamic efficiency, however, concerns aligning the social costs and benefits of R&D and is therefore determined by how much of the social surplus from the new technology is appropriated as producer surplus. We estimate that for the HIV/AIDS therapies that entered the market from the late 1980’s onwards, producers appropriated only 5% of the social surplus arising from these new technologies. We show how to translate standard findings of cost- effectiveness to estimates of innovator appropriation for standard studies of over 200 drugs, and find that these studies implicitly support a low degree of appropriation as well. Despite the high annual costs of drugs to patients, the low share of social surplus going to innovators raises concerns about advocating cost-effectiveness criteria that would further reduce appropriation by innovators, and hence further reduce dynamic efficiency by unduly sacrificing future patients’ health for current ones.
    JEL: D6 D7 H
    Date: 2005–11–28

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