nep-hea New Economics Papers
on Health Economics
Issue of 2006‒10‒28
sixteen papers chosen by
Yong Yin
SUNY at Buffalo, USA

  1. Disability and Work: The Role of Health Shocks and Childhood Circumstances By Lindeboom, Maarten; Llena-Nozal, Ana; van der Klaauw, Bas
  2. The Macroeconomics of Targeting: The Case of an Enduring Epidemic By Bell, Clive; Gersbach, Hans
  3. Elder Parent Health and the Migration Decision of Adult Children: Evidence from Rural China By John Giles; Ren Mu
  4. Immigrant Selection Systems and Immigrant Health By Barry R. Chiswick; Yew Liang Lee; Paul W. Miller
  5. Conjugal Bereavement Effects on Health and Mortality at Advanced Ages By Gerard J. van den Berg; Maarten Lindeboom; France Portrait
  6. Civil War, Crop Failure, and the Health Status of Young Children By Richard Akresh; Philip Verwimp
  7. Hedging Brevity Risk with Mortality-based Securities By MacMinn, Richard; Richter, Andreas
  8. The Distributional Impact of Healthcare Financing in Nigeria: A Case Study of Enugu State By Hyacinth Ementa Ichoku; William Munpuibeyi Fonta
  9. On the definition and estimation of the value of a “statistical life†By Per-Olov JOHANSSON
  10. Does Body Weight affect Wages? Evidence from Europe. By Giorgio Brunello; Beatrice d'Hombres
  11. Predictability and Predictiveness in Health Care Spending By Randall P. Ellis; Thomas G. McGuire
  12. Health Insurance, Expectations, and Job Turnover By Randall P. Ellis; Ching-to Albert Ma
  13. The impact of health behaviors and life quality on gender differences in mortality By Marc Luy; Paola Di Giulio
  14. Who do physicians work for? By Ariadna García-Prado; Paula González
  15. The incentive effects of payment by results By Marisa Miraldo; Maria Goddard; Peter C Smith
  16. Are General Practitioners Good for Endogenous Supply and Health By Hugh Gravelle; Stephen Morris; Matt Sutton

  1. By: Lindeboom, Maarten; Llena-Nozal, Ana; van der Klaauw, Bas
    Abstract: This paper focuses on the relation between the onset of disability and employment outcomes. We develop an event history model that includes unscheduled hospitalizations as a measure for unanticipated health shocks and estimate the model on data from the British National Child Development Study (NCDS). We show that such health shocks increase the likelihood of an onset of a disability by around 138%. However, health shocks are relatively rare events and therefore the larger part of observed disability rates result from gradual deteriorations in health. We find no direct effect of health shocks on employment outcomes. Using the health shock as an instrumental variable shows that the onset of a disability at age 25 causally reduces the employment rate at age 40 with around 21 percentage points. Our results show that early childhood conditions are important in explaining adult health and socioeconomic outcomes. Those who have experienced bad conditions during early childhood have higher rates of health deterioration during adulthood, are more likely to become non-employed and suffer from longer spells of non-employment during the course of life.
    Keywords: disability; early childhood conditions; employment; health shocks
    JEL: I12 J28
    Date: 2006–05
  2. By: Bell, Clive; Gersbach, Hans
    Abstract: What is the right balance among policy interventions in order to ensure economic growth over the long run when an epidemic causes heavy mortality among young adults? We argue that, in general, policies to combat the disease and promote education must be concentrated, in certain ways, on some subgroups of society, at first to the partial exclusion of others. This concentration involves what we term the macroeconomics of targeting. The central comparison is then between programs under which supported families enjoy the benefits of spending on health and education simultaneously (DT), and those under which the benefits in these two domains are sequenced (ST). When levels of human capital are uniformly low at the outbreak, DT is superior to ST if the subsequent mortality rate exceeds some threshold value. Outside aid makes DT more attractive; but DT restricts support to fewer families initially and so increases inequality.
    Keywords: education support; epidemic diseases; health policies; HIV/AIDS; macroeconomics of targeting; poverty traps; single and double targeting
    JEL: E62 H20 I10 I20 O11
    Date: 2006–06
  3. By: John Giles (Michigan State University and IZA Bonn); Ren Mu (World Bank)
    Abstract: Recent research has shown that participation in migrant labor markets has led to substantial increases in income for families in rural China. This paper asks how participation is affected by elder parent health. We find that younger adults are less likely to work as migrants when a parent is ill. Poor elder parent health has less impact on the probability of employment as a migrant when an adult child has siblings who may be available to provide care. We also highlight the potential importance of including information on non-resident family members when studying how parent illness and elder care requirements influence the labor supply decisions of adult children.
    Keywords: migration, health, aging, rural China
    JEL: O12 O15 I12 J14
    Date: 2006–09
  4. By: Barry R. Chiswick (University of Illinois at Chicago and IZA Bonn); Yew Liang Lee (University of Western Australia); Paul W. Miller (University of Western Australia and IZA Bonn)
    Abstract: This paper is an analysis of the determinants of self-reported health status of immigrants, with a particular focus on type of visa used to gain admission. The concept of “health capital” and an immigrant selection and adjustment model are employed. The empirical analysis uses the three waves of the Longitudinal Survey of Immigrants to Australia (panel I). Immigrant health is greater for immigrants who are younger, more educated, male, more proficient in English, and living outside of an immigrant ethnic enclave. Immigrant health is poorest for refugees and best for independent (economic) migrants, and declines with duration in the destination. There is, therefore, evidence for favorable selectivity on the basis of health status among family and especially independent migrants, as well as a tendency toward “regression to the mean” with duration in the destination.
    Keywords: immigrants, health status, visa, longitudinal data
    JEL: I12 J15 J61 F22
    Date: 2006–09
  5. By: Gerard J. van den Berg (Free University Amsterdam, IFAU Uppsala, CEPR, IFS, Netspar and IZA Bonn); Maarten Lindeboom (Free University Amsterdam, HEB Bergen, Netspar and IZA Bonn); France Portrait (Free University Amsterdam)
    Abstract: We specify a model for the lifetimes of spouses and the dynamic evolution of health, allowing spousal death to have causal effects on the health and mortality of the survivor. We estimate the model using a longitudinal survey that traces many health status aspects over time, and that is linked to register data on the vital status of the individuals. The model takes account of selectivity in partners' mortality and health evolution. We find strong instantaneous effects of bereavement on mortality and on certain aspects of health. Individuals lose on average 12 % of residual life expectancy after bereavement. Bereavement affects the share of healthy years in residual lifetime, primarily because healthy years are replaced by years with chronic diseases.
    Keywords: death, longevity, health care, disease, life expectancy, elderly couples, impairment
    JEL: I12 I11 J14 J12 C41
    Date: 2006–10
  6. By: Richard Akresh (University of Illinois at Urbana Champaign and IZA Bonn); Philip Verwimp (Institute of Social Studies, The Hague)
    Abstract: Economic shocks at birth have lasting impacts on children’s health several years after the shock. We calculate height for age z-scores for children under age five using data from a Rwandan nationally representative household survey conducted in 1992. We exploit district and time variation in crop failure and civil conflict to measure the impact of exogenous shocks that children experience at birth on their height several years later. We find that girls born after a shock in a region experiencing these events exhibit 0.72 standard deviations lower height for age z-scores and the impact is worse for poor households. There is no impact of these shocks on boys’ health status. Results are robust to using household level production and rainfall shocks as alternative measures of crop failure. The analysis also contributes to the debate on the economic conditions prevailing on the eve of the Rwandan genocide.
    Keywords: child health, economic shocks, civil war, rainfall shocks, Africa
    JEL: I12 J13 O12 O15
    Date: 2006–10
  7. By: MacMinn, Richard; Richter, Andreas
    Abstract: In 2003, Swiss Re introduced a mortality-based security designed to hedge excessive mortality changes for its life book of business. The concern was apparently brevity risk, i.e., the risk of premature death. The brevity risk due to a pandemic is similar to the property risk associated with catastrophic events such as earthquakes and hurricanes and the security used to hedge the risk is similar to a CAT bond. This work looks at the incentives associated with insurance-linked securities. It considers the trade-offs an insurer or reinsurer faces in selecting a hedging strategy. We compare index and indemnity-based hedging as alternative design choices and ask which is capable of creating the greater value for shareholders. Additionally, we model an insurer or reinsurer that is subject to insolvency risk, which creates an incentive problem known as the judgment proof problem. The corporate manager is assumed to act in the interests of shareholders and so the judgment proof problem yields a conflict of interest between shareholders and other stakeholders. Given the fact that hedging may improve the situation, the analysis addresses what type of hedging tool would be best to use. We show that an indemnity-based security tends to worsen the situation, as it introduces an additional incentive problem. Index-based hedging, on the other hand, under certain conditions turns out to be beneficial and therefore clearly dominates indemnity-based strategies. This result is further supported by showing that for the same strike prices the current shareholder value is greater with the index-based security than the indemnity-based security.
    Keywords: alternative risk transfer; insurance; default risk
    JEL: G22 G32 D82
    Date: 2006–10
  8. By: Hyacinth Ementa Ichoku; William Munpuibeyi Fonta
    Abstract: The deregulation of healthcare financing and supply in Nigeria has shifted the healthcare system towards competitive market ideals. Households' decision to utilize healthcare is identical with healthcare financing. This financing arrangement has potentials for income redistribution in a society with already high levels of inequality in resource redistribution. This study attempts to examine the extent to which this system of healthcare financing leads to catastrophic expenditures, defined as a threshold percentage of a household's income, and the extend of impoverishment arising from healthcare spending. It also uses the Aronson, Johnson, and Lambert (1994) decomposition framework to analyze redistributive effects in terms of vertical and horizontal inequities, as well as re-ranking effect. The study finds that healthcare spending engenders high incidence of catastrophic spending and impoverishment in the population. It also finds that healthcare spending is pro-rich in its redistributive effect, with significant vertical and horizontal inequities as well as reranking inherent in the system. The paper suggests policy reforms that separate healthcare utilization from healthcare financing if the poor are to have access to healthcare services.
    Keywords: Redistributive effects, Healthcare financing, Catastrophic financing, Impoverishing effects, Equity, Nigeria
    JEL: B41 C52 C81 D63 I11
    Date: 2006
  9. By: Per-Olov JOHANSSON
    Abstract: The presentation will discuss the economic meaning of the concept of the Value of a Statistical Life (VSL) and review some of its properties. In particular, the age pattern of the VSL is considered. The presentation will also review recent estimates of the magnitude of a VSL taken from different countries and cultures. The value of preventing a fatality or (saving) a statistical life is an important question in health economics as well as environmental economics. This paper reviews several of the issues discussed in the literature. For example, how do we define the value of a (statistical) life? Are there really strong theoretical reasons for believing that the value of a life declines with age? The paper derives definitions of the value of a statistical life in both single-period models and life-cycle models. Models with and without actuarially fair annuities are examined, as well as the age-profile of the value of a statistical life
    Keywords: Value of a statistical life, value of preventing a fatality, age-specific values, willingness to pay
    JEL: I10 D61 C61
    Date: 2006–10
  10. By: Giorgio Brunello (University of Padua); Beatrice d'Hombres (European Commission Joint Research Centre)
    Abstract: We use data from the European Community Household Panel to investigate the impact of body weight on wages in 9 European countries. When we pool the available data across countries and years, we find that a 10% increase in the average body mass index reduces the real earnings of males and females by 3.27% and 1.86% respectively. Since European culture, society and labour market are heterogeneous, we estimate separate regressions for Northern and Southern Europe and find that the negative impact of the body mass index on earnings is larger - and statistically significant - in the latter area.
    Keywords: wages, body mass index, Europe
    JEL: I12 J3
    Date: 2006–10
  11. By: Randall P. Ellis (Department of Economics, Boston University); Thomas G. McGuire (Harvard University)
    Abstract: This paper re-examines the relation between the predictability of health care spending and incentives due to adverse selection. Within an explicit model of health plan decisions about service levels, we show that predictability (how well spending on certain services can be anticipated), predictiveness (how well the predicted levels of certain services contemporaneously co-vary with total health care spending), and demand responsiveness all matter for adverse selection incentives. The product of terms involving these three measures of predictability, predictiveness, and demand responsiveness define an empirical index of the direction and magnitude of selection incentives. We quantify the relative magnitude of adverse selection incentives bearing on various types of health care services in Medicare. Our results are consistent with other research on service-level selection. The index of incentives can readily be applied to data from other payers.
    Keywords: Health Plans, Adverse Selection, Medicare, Managed Care.
    Date: 2006–01
  12. By: Randall P. Ellis (Department of Economics, Boston University); Ching-to Albert Ma (Department of Economics, Boston University)
    Abstract: This paper attempts to improve our understanding of why many small private employers in the US choose not to offer health insurance to their employees. We develop a theory model, simulate its predictions, and assesses whether the model helps explain empirical patterns of firm decisions to offer insurance. Our theory model provides an explanation for why many small firms do not offer health insurance to their employees even when it may seem attractive to firms, employees and insurers to do so. Small firms have relatively large between-firm variability in expected employee health care costs, and job turnover rates for young and old employees go down differentially when firms offer health insurance. This heterogeneity and differential change in turnover rates mean that expected health costs will increase once health insurance is offered. State regulations on annual rates of premium change, or insurer reluctance to publicly increase premiums rapidly mean that coverage is only offered to small firms at high premiums, those above initial expected costs. The resulting separating equilibrium is one in which some firms face high initial premiums, choose not to offer health insurance, and tolerate higher turnover rates than if offering insurance at lower premiums were feasible. High administrative costs of offering insurance by small firms exacerbate this dynamic selection problem. We examine the predictions of this model using data from the 1997 Robert Wood Johnson Foundation’s Employer Health Insurance Survey (EHIS), which contains establishment data on employees and their offerings of health insurance. We show that turnover rates are systematically higher for in industries not offering insurance. Consistent with previous studies, the EHIS data confirm that small firms are more heterogeneous in their age distribution, income, other health-related variables than large firms. Rather than interpreting this as causing small firms to choose not to offer insurance, we see this as partial evidence in support of our theoretical model that such heterogeneity is partly the consequence of whether health insurance is offered. We then use MEDSTAT MarketScan data from 1998-99 which has individual health care costs of 890,000 adult employees and their dependents. We develop predictive models of health care spending, and simulate distributions of firm-level expected health costs repeatedly for each firm by merging the MEDSTAT and EHIS samples by age, gender, and industry code. Small firms have a great deal of heterogeneity in expected costs. Even if employees are highly risk averse, many small firms will find it unattractive to offer insurance given with high administrative costs even when large subsidies are provided. Moreover, high turnover rates make it easy for firms to quickly change the expected costs, making it difficult for insurers to commit to constant premiums when offering insurance.
    JEL: D45 H40
    Date: 2005–09
  13. By: Marc Luy (Max Planck Institute for Demographic Research, Rostock, Germany); Paola Di Giulio (Max Planck Institute for Demographic Research, Rostock, Germany)
    Abstract: Since gender-specific mortality differences are known a great deal of research has been conducted on this subject. The resulting hypotheses for explaining male excess mortality can be sub-divided into two basic categories: the biological approach (focusing on biological and genetic factors) and the non-biological approach (focusing on behavioral and environmental factors). It has been proven impossible to explain the observed trends in mortality differences between women and men by relying solely on one of the two groups of theories. Recent studies indicate that the majority of the female survival advantage can be attributed to gender behaviors while the impact of biological factors seems to be limited to 1-2 years in life expectancy at birth. The main goal of this paper is to analyze the impact of gender-specific health behaviors and gender differences in life quality using micro level data for Western Germany.
    Keywords: Germany, life styles, mortality, sex differentials
    JEL: J1 Z0
    Date: 2006–10
  14. By: Ariadna García-Prado (The World Bank, Human Development Department.); Paula González (Department of Economics, Universidad Pablo de Olavide)
    Abstract: This paper presents a thorough analysis of the issue of dual job holding among physicians. As the causes and implications of this phenomenon may well depend on the specific form of dual practice under consideration, we first introduce a typology of dual practice in the health sector based on the public versus private nature of the activity and the work regime involved. Our primary focus is on public on private practice, since it is more prevalent and poses greater adverse welfare effects than do other forms. We commence our analysis with a review of the theoretical and empirical economic literature on public on private dual job holding among physicians in developing and developed countries and analyze its underlying motives and economic effects. We find that economic motives are not the only reason why physicians engage in dual practice. Other non-pecuniary factors such as job complementarities, and institutional, professional, structural and personal variables play a relevant role and, hence, should also be taken into account when regulating dual practice. Furthermore, while dual providers may be tempted to skimp on time and effort in their main job, to induce demand for their private services, or to misuse public resources, the legalization of dual practice may also contribute to recruit and retain physicians with less strain on the budget and improve access to health services, especially in developing countries. Finally, the paper highlights the lack of evidence regarding the extent and effects of this phenomenon. Given its implications for the equity, efficiency and quality of health care provision, dual practice among physicians warrants more attention from researchers and policy makers alike.
    Keywords: Dual jobs, health sector, public-private, typology of dual practice.
    JEL: I10 I18
    Date: 2006–10
  15. By: Marisa Miraldo (Centre for Health Economics, University of York); Maria Goddard (Centre for Health Economics, University of York); Peter C Smith (Centre for Health Economics, University of York)
    Abstract: Recently the English NHS has introduced an activity-based payment scheme for secondary care - the Payment by Results (PbR) policy. In this paper we discuss, from an economic perspective, the main intended and unintended incentives created by this policy. We also outline the role of different NHS institutions in monitoring and analysing the impact of PbR and consider the information and data requirements for such tasks.
    Date: 2006–10
  16. By: Hugh Gravelle (Centre for Health Economics, University of York); Stephen Morris (Health Economics Research Group, Brunel University; NPCRDC University of Manchester); Matt Sutton (Health Economics Research Unit, University of Aberdeen)
    Abstract: We investigate the impact of area general practitioner (GP) supply on individual health in England. If no allowance is made for the endogeneity of GP supply, the effect is positive but not statistically significant. When GP supply is instrumented by age related capitation the effect is markedly greater and statistically significant. A 10% increase in GP supply leads to an increase in the proportion of the population reporting very good health by 6% from 36%. The estimated cost per quality adjusted life year gained from an additional GP is between £527 and £5740.
    Date: 2006–10

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