Andrew J. Rettenmaier

Regional variations in medical spending and utilization: a longitudinal analysis of US Medicare population

One of the perceived symptoms of US Medicare inefficiency is the existence of the dramatic variation in spending and utilization in different areas of the country. This study uses the Continuous Medicare History Sample, a large longitudinal 5% sample of all Medicare beneficiaries from 1974 to 2003, to study the issue. We show that the spending and utilization disparities are significant at the aggregate state level. More importantly, the variation shows signs of narrowing over time, particularly in the earlier years of the sample period and in some cases following major reforms. However, it remains significant even after an array of demographic, demand and supply side factors are controlled for.

What determines health: a causal analysis using county level data.

This article revisits the long-standing issue of the determinants of health outcomes. We make two contributions to the literature. First, we use a large and comprehensive US county level health data set that has only recently become available. This data set includes five measures of health outcomes and 24 health risk factors in the categories of health behaviors, clinical care, social and economic factors, and physical environment. Second, to distinguish causality from correlation, we implement an emerging data-driven method to study the causal factors of health outcomes. Among all included potential health risk factors, we identify adult smoking, obesity, motor vehicle crash death rate, the percent of children in poverty, and violent crime rate to be major causal factors of premature mortality. Adult smoking, preventable hospital stays, college or higher education, employment, children in poverty, and adequacy of social support determine health-related quality of life. Finally, the Chlamydia rate, community safety, and liquor store density are three important factors causally related to low birth weight. Policy implications of these findings are discussed.

Discounting according to Output Type

Federal discount rate policies advocate both a high rate representing the marginal productivity of capital and a low rate representing the government borrowing rate. These differential discount rate policies could be inconsistent and biased in favor of projects on which the lower discount rate is applied. This paper shows that the coexistence of different discount rates may be appropriate, depending on the type of project output. When a projects outputs are perfect substitutes for private consumption, both its costs and benefits should be discounted using the marginal productivity of capital. However, if the projects outputs are separable in the utility function, the benefits should be discounted using the net (of tax) rate of return.

Endogenous Patient Responses and the Consistency Principle in Cost-Effectiveness Analysis

In addition to incurring direct treatment costs and generating direct health benefits that improve longevity and/or health-related quality of life, medical interventions often have further or “unrelated” financial and health impacts, raising the issue of what costs and effects should be included in calculating the cost-effectiveness ratio of an intervention. The “consistency principle” in medical cost-effectiveness analysis (CEA) requires that one include both the cost and the utility benefit of a change (in medical expenditures, consumption, or leisure) caused by an intervention or neither of them. By distinguishing between exogenous changes directly brought about by an intervention and endogenous patient responses to the exogenous changes, and within a lifetime utility maximization framework, this article addresses 2 questions related to the consistency principle: 1) how to choose among alternative internally consistent exclusion/inclusion rules, and 2) what to do with survival consumption costs and earnings. It finds that, for an endogenous change, excluding or including both the cost and the utility benefit of the change does not alter cost-effectiveness results. Further, in agreement with the consistency principle, welfare maximization implies that consumption costs and earnings during the extended life directly caused by an intervention should be included in CEA.

The Excess Burden of the Social Security Payroll Tax

The conventional measure of the excess burden of a discrete increase in the rate of either a labor income tax or an excise tax is typically represented by a trapezoid in the supply/demand framework. This article adopts an alternative view of the incremental excess burden due to Mayshar and finds that the excess burden of a discrete increase in the rate of either a labor tax or an excise tax is represented by a triangle plus a rectangle, which is smaller than the conventional trapezoid for labor income taxes but larger than it for excise taxes. The new measure indicates an excess burden for U.S. social security tax (in the labor market alone) that is 10 to 50 percent of what is captured by the traditional trapezoid.

Social Security’s Individual Value and Aggregate Burden

Using a simple expected utility function, we derive discount-rate adjustments for uncertain future expenditures (costs) and revenues (benefits). We apply these results to the individual’s valuation of the Social Security contract, to aggregate measures of Social Security’s obligations, and then to the possibility of a Pareto-improving transition to self-funded retirement savings. Individually, the existing Social Security contract has a negative value for all new entrants to the program. When the value of the program is adjusted for risk, it is possible for a “big bang” transition to self-funded retirement savings to be Pareto improving.

The welfare gain from replacing the health insurance tax exclusion with lump-sum tax credits

This paper analyzes the welfare gain from replacing the tax exclusion of employer-provided health insurance with a lump-sum tax credit. It differs from earlier studies in that we look at the welfare cost of health insurance tax exclusion as coming directly from excessive health insurance rather than from overconsumption of medical care and that we account for the labor market effect of the tax exclusion on welfare. Both differences work to produce a smaller tax reform welfare gain. For a set of mid-range parameter values, the welfare gain is about 21% of current health insurance tax expenditures. In addition, government tax expenditures would fall by 38%, and health insurance spending would fall by 77% after the reform.

A Graphical Exposition of the Link between Two Representations of the Excess Burden of Taxation

The excess burden of taxation typically has two graphical representations in undergraduate microeconomics and public finance textbooks: the IC/BC (indifference curve/budget constraint) representation and the demand/supply representation. The IC/BC representation has the advantage of showing the behavioral response to a distortionary tax and how a substitution effect alone contributes to the excess burden, whereas the demand/supply representation, also known as the Harberger Triangle, has the advantage of being easily estimated using observable variables. The authors provide a link between the two excess burden representations by illustrating how the Harberger Triangle in the demand/supply framework corresponds to the line segment that represents the excess burden in the IC/BC framework.