Stefan Felder

Ageing of population and health care expenditure: a red herring?

This paper studies the relationship between health care expenditure (HCE) and age, using longitudinal rather than cross-sectional data. The econometric analysis of HCE in the last eight quarters of life of individuals who died during the period 1983-1992 indicates that HCE depends on remaining lifetime but not on calendar age, at least beyond 65+. The positive relationship between age and HCE observed in cross-sectional data may be caused by the simple fact that at age 80, for example, there are many more individuals living in their last 2 years than at age 65. The limited impact of age on HCE suggests that population ageing may contribute much less to future growth of the health care sector than claimed by most observers.

Health care expenditure in the last months of life

In OECD countries, a considerable share of health care expenditure (HCE) is spent for the care of the terminally ill. This paper derives the demand for HCE in the last 2 years of life from a model that accounts for age, mortality risk and wealth. The empirical tests are based on data of deceased members of a major Swiss sick fund. The empirical evidence confirms most of the hypotheses derived from the model, i.e., (i) HCE increases with closeness to death, (ii) for retired individuals, HCE decreases with age, and (iii) low-income individuals, as compared to high-income individuals, incur lower HCE in the last months of life.

Environmental tax reform: efficiency and political feasibility

Although market-based environmental measures like uniform CO2 taxes reach a given standard at minimal cost, they do not prevail in real world policies. An effciency oriented environmental policy fails, as it involves a redistributen of pollution rights, resulting in a strong and generally effective opposition of the groups that forego economic rents. The present paper analyzes the tradoff between efficiency and political feasibility of several CO2 tax and reimbursement schemes, using a computable general equilibrium model of Switzerland. The simulation results indicate that a policy combining a uniform CO2 tax with differentiated labor subsidies preventing intersectoral redistribution is a better solution for the tradeoff than the presently existing tax schemes in various countries.

Spatial allocation of emergency medical services: minimising the death rate or providing equal access?

Abstract Both the quantity and quality of lives saved by Emergency Medical Services (EMS) crucially depend on the response time. Since the cost of provision differs across regions, providing equal optional access to EMS results in an equity–efficiency trade-off. We offer a theory of EMS provision to contrast the results of an equal access policy to a policy aimed at maximising survival. EMS cost and output data from 14 German Lander support the hypothesis that German policy makers are adopting an efficiency approach in choosing response time. Differences in the choice of maximal response time can be accounted for by differences in EMS cost. EMS data for a region where a uniform response time applies allow us to estimate the magnitude of the intra-regional variations in the value of life resulting from an equal access policy.

The variance of length of stay and the optimal DRG outlier payments

Prospective payment schemes in health care often include supply-side insurance for cost outliers. In hospital reimbursement, prospective payments for patient discharges, based on their classification into diagnosis related group (DRGs), are complemented by outlier payments for long stay patients. The outlier scheme fixes the length of stay (LOS) threshold, constraining the profit risk of the hospitals. In most DRG systems, this threshold increases with the standard deviation of the LOS distribution. The present paper addresses the adequacy of this DRG outlier threshold rule for risk-averse hospitals with preferences depending on the expected value and the variance of profits. It first shows that the optimal threshold solves the hospital’s tradeoff between higher profit risk and lower premium loading payments. It then demonstrates for normally distributed truncated LOS that the optimal outlier threshold indeed decreases with an increase in the standard deviation.

To Wait or to Pay for Medical Treatment? Restraining Ex-Post Moral Hazard in Health Insurance

We explore the hierarchy of two instruments, waiting time and coinsurance for medical treatment, for optimally solving the tradeoff between the economic gains from risk sharing and the losses from moral hazard. We show that the optimal waiting time is zero, given that the coinsurance rate is optimally set.

Risk preferences: consequences for test and treatment thresholds and optimal cutoffs.

Risk attitudes include risk aversion as well as higher-order risk preferences such as prudence and temperance. This article analyzes the effects of such preferences on medical test and treatment decisions, represented either by test and treatment thresholds or—when the test result is not given—by optimal cutoff values for diagnostic tests. For a risk-averse decision maker, effective treatment is a risk-reducing strategy since it prevents the low health outcome of forgoing treatment in the sick state. Compared with risk neutrality, risk aversion thus lowers both the test and the treatment threshold and decreases the optimal test cutoff value. Risk vulnerability, which combines risk aversion, prudence, and temperance, is relevant if there is a comorbidity risk: thresholds and optimal cutoff values decrease even more. Since common utility functions imply risk vulnerability, our findings suggest that diagnostics in low prevalence settings (e.g., screening) may be considered more beneficial when risk preferences are taken into account.

Revenue recycling of a CO2 tax: Results from a general equilibrium model for Switzerland

This paper combines a recent proposal by the Swiss government for a CO2 tax with a policy that uses the tax revenues to lower the pre-existing marginal labor income tax rates, and examines the efficiency and distribution effects of such a revenue recycling policy. The investigation, based on a large-scale general equilibrium model, contrary to other studies, indicates that an environmental tax reform involves negative gross cost, that is, increases welfare even when environmental benefits are not accounted for. The simulation results further show that the adverse distributional effects of a pure CO2 tax are neutralized or even reversed when tax revenues finance cuts of existing taxes.

Lebenserwartung, medizinischer Fortschritt und Gesundheitsausgaben: Theorie und Empirie

Abstract Over the past 50 years Germans have spent a rising share of their income on health and enjoyed substantially longer lives as a result. The rising health share can be explained by a standard economic model: As people get richer they purchase additional years of life and less additional consumption, provided that satiation occurs more rapidly in non-health consumption. The gains in life years increasingly occur late in the lifespan. As a result the incremental cost-benefit ratio of health care deteriorates: marginal costs increase as the marginal productivity of medical inputs decreases in old age while marginal benefits decrease due to a rising hazard rate. On average, medical progress is worth it. Future income growth will further increase the health share, while population ageing will only marginally affect health care expenditures.

Fire insurance in Germany: A comparison of price-performance between state monopolies and competitive regions

Abstract Up until 1994 there were two different forms of organizing the fire insurance market in Germany. While a state monopoly applied in 13 regions, a competitive market system combined with government regulation existed in the rest of the country. This study identifies the effects of market forms on the price-performance of insurance companies. It is based on annual company data including premium revenues, damage payments and general expenses for the period 1980–1994. The estimation results indicate that monopolies had a 22 percent lower markup on damage payments compared to companies in competitive regions with an average markup of 42 percent. The difference may be explained by higher selling costs for companies in competitive markets, indicated by a high share of commissions in total expenses.