Louise Sheiner

Managed Care and the Growth of Medical Expenditures

We use data across states to examine the relation between HMO enrollment and medical spending. We find that increased managed care enrollment significantly reduces hospital cost growth. Although increased spending on physicians offsets some of this effect, we generally find a significant reduction in total spending as well. In analyzing the sources of hospital cost reductions, we find preliminary evidence that managed care has reduced the diffusion of medical technologies. States with high managed care enrollment were technology leaders in the early 1980s; by the early 1990s those states were only average in their acquisition of new technologies. This finding suggests managed care may significantly affect the long-run growth of medical spending.

The Geography of Medicare

There is a great deal of geographic variation in Medicare spending. For example, while the average Medicare cost per beneficiary was around

The Household Spending Response to the 2003 Tax Cut: Evidence from Survey Data

5200 in 1996, Medicare spending, adjusted for differences in regional prices and demographic composition, was about

The Sustainability of Health Spending Growth

8000 per person in Miami, but only

Generational Aspects of Medicare

3500 in Minneapolis. In this paper, we explore the source of this variation. We find that a substantial amount can be explained by differences across areas in the health of the elderly population. This finding suggests that some of the geographic variation in Medicare spending is efficient. But even accounting for differences in the health of the population, significant variation remains. We have been able to explain some of the remaining variation. The strongest factors are supply variables: for-profit hospitals and specialist physicians both increase Medicare spending. If these factors are exogenous, public policy may want to consider the supply of medical services more than it currently does. We do not find that expensive places spend a disproportionate amount on those near death. (This abstract was borrowed from another version of this item.)

Why the geographic variation in health care spending cannot tell us much about the efficiency or quality of our health care system

The Jobs and Growth Tax Relief and Reconciliation Act of 2003 has been described as textbook fiscal stimulus. Using household survey data on the self-reported qualitative response to the tax cuts, we estimate that the boost to aggregate personal consumption expenditures from the child credit rebate and the reduction in withholdings raised the average level of real GDP in the second half of 2003 by 0.2 percent and by 0.3 percent in the first half of 2004. We also show that households in the survey were well aware of their tax cuts and tended to spend equally out of the child credit rebate and the reduced withholdings, a result that is contrary to the conventional wisdom.

A Primer on the Macroeconomic Implications of Population Aging

We evaluate the long-run sustainability of health spending growth. Under the criterion that non-health consumption does not fall, one percent excess cost growth appears to be an upper bound for the economy as a whole when the projection horizon extends over the century, although some groups would experience declines in non-health consumption. More generally, the increase in health spending as a share of income may lead to a significant expansion of public sector financing, as has been the case historically. Extrapolation of historical trends also suggests that higher health spending will lead to insurance contracts with lower out-of-pocket payment shares, putting further upward pressure on health care expenditures.

The geography of Medicare

This paper examines the generational aspect of the current Medicare system and some stylized reforms. We find that the rates of return on Medicare for todays workers are higher than those for Social Security and that the Medicare system is shifting a greater share of the burden on future workers than is Social Security. Nonetheless, the rates of return on Medicare, using the Medicare Trustees assumptions, are still not that high--roughly 2 percent for todays youngest workers. But forecasting future Medicare expenditures is quite difficult. Under an alternative higher-cost baseline, which we consider plausible, rates of return for todays youngest workers will exceed 3 percent. Putting Medicare on a sustainable basis by raising the payroll tax or reducing benefits would greatly reduce the rate of return for todays workers. Under the Trustees assumptions, for example, the payroll tax would have to be increased by 2.0 percent of payroll to put the Medicare system in balance in perpetuity. This policy would reduce the rate of return on todays youngest workers to about 1.3 percent.

The fiscal stress arising from state and local retiree health obligations

Examining the geographic variation in Medicare and non-Medicare health spending, I find little support for the view that most of the variation can be attributed to differences in practice styles. Instead, I find that socioeconomic factors that affect the need for medical care, as well as interactions between the Medicare system and other parts of the health system, can account for most of the variation in spending. I also find that controlling for health attributes at the state level explains more of the state-level variation associated with omitted health attributes than controlling for them at the individual level, an econometric difference that likely explains much of the difference between my results and those of the Dartmouth group. More broadly, I find that geographic variations in health spending do not provide a useful way to examine the inefficiencies of our health system. States where Medicare spending is high differ in multiple ways from states where it is low, and it is difficult to isolate the effects of health spending intensity from the effects of the underlying state characteristics. I show, for example, that previous findings about the relationships between health spending, the share of physicians who are general practitioners, and health care quality, are likely the result of omitted factors rather than the result of causal relationships.

An Examination of Health-Spending Growth in the United States: Past Trends and Future Prospects

The composition of the U.S. population will change significantly in coming decades as the decline in fertility rates following the baby boom, coupled with increasing longevity, leads to an older population. This demographic shift will likely have a dramatic effect on the long-run prospects for living standards. Moreover, as has been widely discussed in the media and by policymakers, population aging also has significant implications for social programs for the elderly, such as Social Security and Medicare. In this paper, we discuss the consequences of population aging from a macroeconomic perspective and consider alternative paths the economy could follow in response to population aging. The choices society makes among those alternatives will be closely linked to decisions about how to reform entitlement programs for the elderly. The fundamental conclusion of our study is that, barring a significant increase in labor force participation, population aging will lead to a reduction in per capita consumption relative to a baseline in which the demographic composition of the population does not change. The size of any consumption reduction depends critically on whether the adjustment happens sooner or later and on whether the labor force participation of the elderly changes. Important policy questions, then, are whose consumption path falls, by how much, when, and by what means? Decisions about Social Security and Medicare reform are integrally bound up with these fundamental policy questions.