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.
The Evolution of Health Insurer Costs in Massachusetts, 2010-12 by Katherine Ho, Ariel Pakes, Mark Shepard :: SSRNDecember 2, 2016
We analyze the evolution of health insurer costs in Massachusetts between 2010-2012, a period in which the use of physician cost control incentives spread among insurers. We show that the growth of costs and its relationship to the introduction of cost control incentives cannot be understood without accounting for (i) consumers’ switching between plans, and (ii) differences in cost characteristics between new entrants and those leaving the market. New entrants are markedly less costly than those leaving (and their costs fall after their entering year), so cost growth of those who stay in a plan is significantly higher than average per-member cost growth. Cost control incentives were used by Health Maintenance Organizations (HMOs). Relatively high-cost HMO members switched to Preferred Provider Organizations (PPOs) while low-cost PPO members switched to HMOs. As a result, the impact of cost control incentives on HMO costs is likely different from their impact on market-wide insurer costs.
Intertemporal Substitution in Health Care Demand: Evidence from the Rand Health Insurance Experiment by Haizhen Lin, Daniel W. Sacks :: SSRNDecember 1, 2016
Nonlinear cost-sharing in health insurance encourages intertemporal substitution because patients can reduce their out-of-pocket costs by concentrating spending in years when they hit the deductible. We test for such intertemporal substitution using data from the RAND Health Insurance Experiment, where people were randomly assigned either to a free care plan or to a cost-sharing plan which had coinsurance up to a maximum dollar expenditure (MDE). Hitting the MDE – leading to an effective price of zero – has a bigger effect on monthly health care spending and utilization than does being in free care, because people who hit the MDE face high future and past prices. As a result, we estimate that sensitivity to short-lasting price changes is about twice as large as sensitivity to long-lasting changes. These findings help reconcile conflicting estimates of the price elasticity of demand for health care, and suggest that high deductible health plans may be less effective than hoped in controlling health care spending.
Screening in Contract Design: Evidence from the ACA Health Insurance Exchanges by Michael Geruso, Timothy J. Layton, Daniel Prinz :: SSRNDecember 1, 2016
By steering patients to cost-effective substitutes, the tiered design of prescription drug formularies can improve the efficiency of healthcare consumption in the presence of moral hazard. However, a long theoretical literature describes how contract design can also be used to screen consumers by profitability. In this paper, we study this type of screening in the ACA Health Insurance Exchanges. We first show that despite large regulatory transfers that neutralize selection incentives for most consumer types, some consumers are unprofitable in a way that is predictable by their prescription drug demand. Then, using a difference-in-differences strategy that compares Exchange formularies where these selection incentives exist to employer plan formularies where they do not, we show that Exchange insurers design formularies as screening devices that are differentially unattractive to unprofitable consumer types. This results in inefficiently low levels of coverage for the corresponding drugs in equilibrium. Although this type of contract distortion has been highlighted in the prior theoretical literature, until now empirical evidence has been rare. The impact on out-of-pocket costs for consumers affected by the distortion is substantial — potentially thousands of dollars per year — and the distortion creates an equilibrium in which contracts that efficiently trade off moral hazard and risk protection cannot exist.
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.
ObamaCare’s political disciples are dismissive of the tails of woe that ObamaCare has left in its wake, pointing instead to statistics on the reduced rate of uninsured.
But the rising rate of insured Americans is a phenomenon mostly driven by the massive expansion of Medicaid. Only about half of the people covered by ObamaCare previously lacked health insurance. The rest are folks who had coverage at work or in the individual market, and were forcibly transitioned onto the exchanges.
By comparison, the travails of John, who manages a small retail business, is far more emblematic of the myriad ways that ObamaCare has wrought havoc on the lower middle class, working Americans that the law was ostensibly meant to help.
While health care policy was not a prime focus during the election season, it has garnered attention recently, especially with Affordable Care exchange premium increases. The federal budget deficit and entitlement spending are also recurring themes of presidential politics. On July 12, 2016 the Altarum Institute Center for Sustainable Health Spending (CSHS) held its annual symposium in Washington, DC. It was the sixth such meeting organized by CSHS, and the fifth year supported by the Robert Wood Johnson Foundation.