Amy Finkelstein

Medicaid Increases Emergency-Department Use: Evidence from Oregon's Health Insurance Experiment

Health Economy? The intensity of arguments over social science issues often seems inversely correlated with the quantity of experimental evidence. Taubman et al. (p. 263, published online 2 January; see the Policy Forum by Fisman) report on the latest analysis of an ongoing controlled experiment—the Oregon Health Insurance Experiment—that seeks to identify and quantify the effects of extending health insurance coverage to a low-income adult population. A substantial increase was observed in visits to the emergency departments of hospitals, corresponding to approximately 120 U.S. dollars per year more in hospital costs. Expanding health coverage of low-income adults can result in increased usage of hospital emergency departments. In 2008, Oregon initiated a limited expansion of a Medicaid program for uninsured, low-income adults, drawing names from a waiting list by lottery. This lottery created a rare opportunity to study the effects of Medicaid coverage by using a randomized controlled design. By using the randomization provided by the lottery and emergency-department records from Portland-area hospitals, we studied the emergency department use of about 25,000 lottery participants over about 18 months after the lottery. We found that Medicaid coverage significantly increases overall emergency use by 0.41 visits per person, or 40% relative to an average of 1.02 visits per person in the control group. We found increases in emergency-department visits across a broad range of types of visits, conditions, and subgroups, including increases in visits for conditions that may be most readily treatable in primary care settings.

The Private Market for Long-Term Care Insurance in the United States: A Review of the Evidence

This article reviews the growing literature on the market for private long-term care insurance, a market notable for its small size despite the fact that long-term care expenses are potentially large and highly uncertain. After summarizing long-term care utilization and insurance coverage in the United States, the article reviews research on the supply of and the demand for private long-term care insurance. It concludes that demand-side factors impose important limits on the size of the private market and that we currently have a limited understanding of how public policies could be designed to encourage the growth of this market.

Input and Technology Choices in Regulated Industries: Evidence from the Health Care Sector

This paper examines the implications of regulatory change for input mix and technology choices of regulated industries. We study the increase in the relative price of labor faced by U.S. hospitals that resulted from the move from full cost to partial cost reimbursement under the Medicare Prospective Payment System (PPS) reform. Using the interaction of hospitals’ pre‐PPS Medicare share of patient days with the introduction of PPS, we document substantial increases in capital‐labor ratios and declines in labor inputs following PPS. Most interestingly, we find that PPS seems to have encouraged the adoption of a range of new medical technologies.

OPTIMAL MANDATES AND THE WELFARE COST OF ASYMMETRIC INFORMATION: EVIDENCE FROM THE U.K. ANNUITY MARKET

Much of the extensive empirical literature on insurance markets has focused on whether adverse selection can be detected. Once detected, however, there has been little attempt to quantify its welfare cost or to assess whether and what potential government interventions may reduce these costs. To do so, we develop a model of annuity contract choice and estimate it using data from the U.K. annuity market. The model allows for private information about mortality risk as well as heterogeneity in preferences over different contract options. We focus on the choice of length of guarantee among individuals who are required to buy annuities. The results suggest that asymmetric information along the guarantee margin reduces welfare relative to a first-best symmetric information benchmark by about £127 million per year or about 2 percent of annuitized wealth. We also find that by requiring that individuals choose the longest guarantee period allowed, mandates could achieve the first-best allocation. However, we estimate that other mandated guarantee lengths would have detrimental effects on welfare. Since determining the optimal mandate is empirically difficult, our findings suggest that achieving welfare gains through mandatory social insurance may be harder in practice than simple theory may suggest.

The effect of tax subsidies to employer-provided supplementary health insurance: evidence from Canada

Abstract This paper presents new evidence of the effect of the tax subsidy to employer-provided health insurance on coverage by such insurance. I study the effects of a 1993 tax change that reduced the tax subsidy to employer-provided supplementary health insurance in Quebec by almost 60%. Using a differences-in-differences methodology in which changes in Quebec are compared to changes in other provinces not affected by the tax change, I find that this tax change was associated with a decrease of about one-fifth in coverage by employer-provided supplementary health insurance in Quebec. This corresponds to an elasticity of employer coverage with respect to the tax price of about −0.5. Non-group supplementary health insurance coverage rose slightly in Quebec relative to other provinces in response to the reduction in the tax subsidy to employer-provided (group) coverage. But the increase in the non-group market offset only 10–15% of the decrease in coverage through an employer. The decrease in coverage through an employer was especially pronounced in small firms, where the tax subsidy appears much more critical to the provision of supplementary health insurance than it does in larger firms.

Social Insurance: Connecting Theory to Data

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. 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.

Sources of Geographic Variation in Health Care: Evidence From Patient Migration

We study the drivers of geographic variation in US health care utilization, using an empirical strategy that exploits migration of Medicare patients to separate the role of demand and supply factors. Our approach allows us to account for demand differences driven by both observable and unobservable patient characteristics. Within our sample of over-65 Medicare beneficiaries, we find that 40-50 percent of geographic variation in utilization is attributable to demand-side factors, including health and preferences, with the remainder due to place-specific supply factors. JEL: H51, I1, I11.

MORAL HAZARD IN HEALTH INSURANCE: DO DYNAMIC INCENTIVES MATTER?

Using data from employer-provided health insurance and Medicare Part D, we investigate whether health care utilization responds to the dynamic incentives created by the nonlinear nature of health insurance contracts. We exploit the fact that because annual coverage usually resets every January, individuals who join a plan later in the year face the same initial (“spot”) price of health care but a higher expected end-of-year (“future”) price. We find a statistically significant response of initial utilization to the future price, rejecting the null that individuals respond only to the spot price. We discuss implications for analysis of moral hazard in health insurance.

The interaction of partial public insurance programs and residual private insurance markets: evidence from the US Medicare program

A ubiquitous form of government intervention in insurance markets is to provide compulsory, but partial, public insurance coverage and to allow voluntary purchases of supplementary private insurance. This paper investigates the effects of such programs on insurance coverage for the risks not covered by the public program, using the example of the US Medicare program. I find that Medicare does not have substantial effects-in either direction-on coverage in residual private insurance markets. In particular, there is no evidence that Medicare is associated with reductions in private insurance coverage for prescription drug expenditures, an expenditure risk not covered by Medicare. Medicare is, however, associated with a shift in the source of prescription drug coverage, from employer-provided coverage to Medicare HMOs.

The Oregon Health Insurance Experiment: When Limited Policy Resources Provide Research Opportunities

In 2008 Oregon allocated access to its Medicaid expansion program, Oregon Health Plan Standard, by drawing names from a waiting list by lottery. The lottery was chosen by policy makers and stakeholders as the preferred way to allocate limited resources. At the same time, it also gave rise to the Oregon Health Insurance Experiment: an unprecedented opportunity to do a randomized evaluation - the gold standard in medical and scientific research - of the impact of expanding Medicaid. In this article we provide historical context for Oregons decision to conduct a lottery, discuss the importance of randomized controlled designs for policy evaluation, and describe some of the practical challenges in successfully capitalizing on the research opportunity presented by the Oregon lottery through public-academic partnerships. Since policy makers will always face tough choices about how to distribute scarce resources, we urge thoughtful consideration of the opportunities to incorporate randomization that can substantially improve the evidence available to inform policy decisions without compromising policy goals.