Longer lifespans largely not to blame for rising health care spending | The Incidental Economist

January 25, 2017

In other words, living longer doesn’t increase health care spending so much as it delays the large amount spent near death. Some health care spending is associated with those intervening, relatively healthy years, just not much compared with that spent in one’s final years.Living longer offers many benefits. That it isn’t, by itself, a major contributor to health care spending is a nice bonus.

Source: Longer lifespans largely not to blame for rising health care spending | The Incidental Economist


Fiscal Stabilization and the Credibility of the U.S. Budget Sequestration Spending Austerity by Ruiyang Hu, Carlos E.J.M. Zarazaga :: SSRN

January 21, 2017

Fiscal imbalances predating the Great Recession but aggravated by it prompted the U.S. Congress to enact in 2011 legislation that, in the absence of other measures, would trigger two years later a so-called “budget sequestration” procedure that implied reducing government discretionary spending to unprecedented low levels over the following decade. For that reason, economic agents may not have expected this “fiscal stabilization measure of last resort” to be sustainable when it was put into effect in 2013 as scheduled. This is exactly the issue this paper set out to explore, on the grounds that sizing up the expectations that economic agents had about the budget sequestration can provide powerful insights on how fiscal stabilization is likely to proceed in the U.S., going forward. The paper makes inferences about the credibility enjoyed by the budget sequestration with an adapted version of the Business Cycle Accounting approach, originally developed for other purposes.

The main finding is that the evidence favors a scenario in which spending cuts are half the size of those actually implied by the sequester. The paper takes this result as an indication that the U.S. is unlikely to address its unresolved fiscal imbalances with just spending austerity, an interpretation consistent with existing literature that traces the seemingly anomalous behavior of economic variables during the Great Recession and its aftermath to alternative fiscal stabilization mechanisms.

Source: Fiscal Stabilization and the Credibility of the U.S. Budget Sequestration Spending Austerity by Ruiyang Hu, Carlos E.J.M. Zarazaga :: SSRN


How Does Technological Change Affect Quality ­Adjusted Prices in Health Care? Systematic Evidence from Thousands of Innovations by Kristopher Hult, Sonia Jaffe, Tomas Philipson :: SSRN

January 5, 2017

Medical innovations have improved survival and treatment for many diseases but have simultaneously raised spending on health care. Many health economists believe that technological change is the major factor driving the growth of the heath care sector. Whether quality has increased as much as spending is a central question for both positive and normative analysis of this sector. This is a question of the impact of new innovations on quality-adjusted prices in health care. We preform a systematic analysis of the impact of technological change on quality-adjusted prices, with over six thousand comparisons of innovations to incumbent technologies. For each innovation in our dataset, we observe its price and quality, as well as the price and quality of an incumbent technology treating the same disease. Our main finding is that an innovation’s quality-adjusted prices is higher than the incumbent’s for about two-thirds (68%) of innovations. Despite this finding, we argue that quality-adjusted prices may fall or rise over time depending on how fast prices decline for a given treatment over time. We calibrate that price declines of 4% between the time when a treatment is a new innovation and the time when it has become the incumbent would be sufficient to offset the observed price difference between innovators and incumbents for a majority of indications. Using standard duopoly models of price competition for differentiated products, we analyze and assess empirically the conditions under which quality-adjusted prices will be higher for innovators than incumbents. We conclude by discussing the conditions particular to the health care industry that may result in less rapid declines, or even increases, in quality-adjusted prices over time.

Source: How Does Technological Change Affect Quality ­Adjusted Prices in Health Care? Systematic Evidence from Thousands of Innovations by Kristopher Hult, Sonia Jaffe, Tomas Philipson :: SSRN


U.S. GAO – State and Local Governments’ Fiscal Outlook: 2016 Update

December 13, 2016

Our simulations show that a primary driver of long-term fiscal challenges for the state and local government sector continues to be the growth in health-related costs. Specifically, state and local Medicaid expenditures and the cost of health care compensation for state and local government employees and retirees generally grow at a rate that exceeds GDP.7 The model’s simulations suggest that the sector’s health-related costs will be about 4.1 percent of GDP in 2016 and 6.3 percent of GDP in 2065. From 2016 through 2065, Medicaid expenditures are expected to increase on average by 0.5 percentage points more than GDP—referred to as excess cost growth. Other health related receipts and expenditures, including health care compensation for state and local government employees and retirees, are expected to increase on average by 0.9 percentage points more than GDP each year from 2016 to 2023, and then begin to decline, reaching 0.7 percentage points in 2065.

Source: U.S. GAO – State and Local Governments’ Fiscal Outlook: 2016 Update


Updating Mechanism for Lifelong Insurance Contracts Subject to Medical Inflation by Michel Denuit, Jan Dhaene, Hamza Hanbali, Nathalie Lucas, Julien Trufin :: SSRN

December 7, 2016

This paper proposes a practical way for ex-post indexing of level premiums in lifelong medical insurance contracts, in order to take into account observed medical inflation. We show that ex-post indexing can be achieved by considering only premiums, without explicit reference to reserves. This appears to be relevant in practice as reserving mechanisms may not be transparent to policyholders and as some insurers do not compute contract-specific reserves, managing the whole portfolio in a collective way. The present study originates from a proposal for indexing lifelong medical insurance level premiums in Belgium. As an application, we study the impact of various indexing mechanisms on a typical medical insurance portfolio on the Belgian market.

Source: Updating Mechanism for Lifelong Insurance Contracts Subject to Medical Inflation by Michel Denuit, Jan Dhaene, Hamza Hanbali, Nathalie Lucas, Julien Trufin :: SSRN


Health Care Spending: Historical Trends and New Directions by Alice Chen, Dana Goldman :: SSRN

December 7, 2016

Over the past five decades, broad changes in the US health care system have dramatically influenced growth in health care expenditures. This review identifies the salient factors driving the growth of medical expenditures and how they influenced the trajectory of health economics research. We find that the research identified — and was strongly influenced by — four eras of expenditure growth: period 1, coverage expansion; period 2, experimentation with financial incentives; period 3, the managed care backlash; and period 4, a golden era of declining expenditure growth. We conclude by discussing some themes from this research suggesting optimism that, going forward, we can curb excess expenditure growth above GDP growth without harming population health.

Source: Health Care Spending: Historical Trends and New Directions by Alice Chen, Dana Goldman :: SSRN


Controlling Health Care Spending: More Patient ‘Skin in the Game?’ by David Orentlicher :: SSRN

December 1, 2016

While health care cost inflation slowed during the past few years, it has started to pick up again, and policy makers have good cause for concern about future increases in health care spending. Moreover, even if future increases moderate, policy makers rightly worry about the already high levels of U.S. spending. The need for effective cost containment strategies in health care persists, even though the Affordable Care Act appears to have had some success at containing health care costs.

Health care spending reforms can focus on physician and hospital practices or on patient behavior, and popular reform proposals include both approaches. For example, rather than paying physicians and hospitals in terms of the quantity of care that they provide and encouraging the provision of too much care, private insurers and government programs are turning more and more to forms of reimbursement that are based on the quality of care delivered. Insurers often adjust physicians’ compensation based on whether they screen their patients for cancer or high cholesterol, administer recommended immunizations, or achieve good control of blood sugar levels for their patients with diabetes.

The Affordable Care Act addresses patient behavior by requiring insurers to cover important kinds of preventive care for free. That way, people will not be discouraged for financial reasons from seeking early care that can keep them healthier and avoid the need for hospitalizations and other expensive treatments.In this article, I consider an increasingly common strategy that insurers use to influence patient behavior — giving people more “skin in the game.” When medical treatment can be obtained at very low cost, people may be too quick to seek it when they feel sick, visiting their physicians when they would do just as well by staying home. Hence, insurers have raised deductibles and co-payments and shifted the costs of care to patients in other ways in the hope that people will become more conscious of the costs of their care. Although concerns about patients seeking too much care are important, common strategies for giving patients more skin in the game have been poorly conceived. There is room for skin-in-the-game strategies to contain high health care spending, but only when they are properly designed.

Source: Controlling Health Care Spending: More Patient ‘Skin in the Game?’ by David Orentlicher :: SSRN