Abstracts of Selected Recent NBER Working Papers

WP 14231

John B. Shoven, Gopi Shah Goda

Adjusting Government Policies for Age Inflation

Government policies that are based on age do not adjust to the fact that a given age is associated with a higher remaining life expectancy and lower mortality risk relative to earlier time periods due to improvements in mortality. We examine four possible methods for adjusting the eligibility ages for Social Security, Medicare, and Individual Retirement Accounts to determine what eligibility ages would be today and in 2050 if adjustments for mortality improvement were taken into account. We find that historical adjustment of eligibility ages for age inflation would have increased ages of eligibility by approximately 0.15 years annually. Failure to adjust for mortality improvement implies the percent of the population eligible to receive full Social Security benefits and Medicare will increase substantially relative to the share eligible under a policy of age adjustment.

WP 14296

Claudio Lucarelli, Jeffrey Prince, Kosali Simon

Measuring Welfare and the Effects of Regulation in a Government-Created Market: The Case of Medicare Part D Plans

Medicare's prescription drug benefit (Part D) has been its largest expansion of benefits since 1965. Since the implementation of Part D, many regulatory proposals have been advanced to improve this government-created market. Among the most debated are proposals to limit the number of options, in response to concerns that there are "too many" plans. In this paper we study the welfare impacts of limiting the number of Part D plans. To do this, we first provide evidence that consumers view Medicare Part D plans as differentiated products. In doing so, we determine how much Medicare beneficiaries value the plans' various features - an important measurement not only for our analysis, but also because these features are heavily dictated by policy. Second, using our demand- and supply-side estimates, we conduct several policy experiments to understand the implications of reducing the number of plans. Specifically, we assess the effects on equilibrium premia and welfare from removing plans that cover "the gap," reducing the maximum number of plans each firm can offer per region, and, for validation purposes, the impact of a recent major merger. Our counterfactuals regarding removal of plans provide an important assessment of the losses to consumers (and producers) resulting from government limitations on choice. These costs must be weighed against the widely discussed expected gains from limiting options (due to expected reductions in consumer search costs) when considering new restrictions on the number of plans that can be offered. We find that the search costs should be at least two thirds of the average monthly premium in order to justify a regulation that allows only two plans per firm, and that this number would be substantially lower if the limitation in the number of plans is coupled with a decrease in product differentiation (e.g., by removing plans that cover "the gap").

WP 14309

John Cogan, R. Glenn Hubbard, Daniel Kessler

The Effect of Medicare Coverage for the Disabled on the Market for Private Insurance

Subsidies for health insurance for chronically ill, high-cost individuals may increase coverage in the broader population by improving the functioning of insurance markets. In this paper, we assess an historical example of a policy intervention of this sort, the extension of Medicare to the disabled, on the private insurance coverage of non-disabled individuals. We use data on insurance coverage from the Panel Study of Income Dynamics from before and after the extension of Medicare to the disabled to estimate the effect of the program on private insurance coverage rates in the broader population. We find that the insurance coverage of individuals who had a health condition that limited their ability to work increased significantly in states with high versus low rates of disability. Our findings suggest that that subsidizing individuals with high expected health costs is an effective way to increase the private insurance coverage of other high-cost individuals.

WP 14350

Hai Fang, Nolan Miller, John Rizzo, Richard Zeckhauser

Demanding Customers: Consumerist Patients and Quality of Care

Consumerism arises when patients acquire and use medical information from sources apart from their physicians, such as the Internet and direct-to-patient advertising. Consumerism has been hailed as a means of improving quality. This need not be the result. Consumerist patients place additional demands on their doctors' time, thus imposing a negative externality on other patients. Our theoretical model has the physician treat both consumerist and ordinary patient under a binding time budget. Relative to a world in which consumerism does not exist, consumerism is never Pareto improving, and in some cases harms both consumerist and ordinary patients. Data from a large national survey of physicians shows that high levels of consumerism are associated with lower perceived quality. Three different measures of quality were employed. The analysis uses instrumental variables to control for the endogeneity of consumerism. A control function approach is employed, since our dependent variable is ordered and categorical, not continuous.

WP 14354

Anna Aizer

Peer Effects and Human Capital Accumulation: the Externalities of ADD

Although recent work has shown that peers affect human capital accumulation, the mechanisms are not well understood. Knowing why high achieving peers matter, because of their innate ability, disciplined behavior or some other factor, has important implications for our understanding of the education production function and for how we organize schools and classrooms. In this paper I provide evidence that peer behavior is an important mechanism. To identify the impact of peer behavior on achievement separate from ability or other characteristics, I exploit exogenous improvements in classmates' inattention/impulsivity that result from a diagnosis of ADD. After children with ADD are diagnosed, I show that their behavior improves, but that no other characteristics, including achievement, change. I find that peer behavior significantly affects cognitive achievement and that resources such as class size can overcome the negative peer effects observed, consistent with the model of education production proposed by Lazear (2001). These findings have important implications for our understanding not only of peer effects but also of the relationship between health, productivity and growth.

WP 14406

Jessica Cohen, Pascaline Dupas

Free Distribution or Cost-Sharing? Evidence from a Malaria Prevention Experiment

It is often argued that cost-sharing - charging a subsidized, positive price - or a health product is necessary to avoid wasting resources on those who will not use or do not need the product. We explore this argument through a field experiment in Kenya, in which we randomized the price at which prenatal clinics could sell long lasting anti-malarial insecticide-treated nets (ITNs) to pregnant women. We find no evidence that cost-sharing reduces wastage on those that will not use the product: women who received free ITNs are not less likely to use them than those who paid subsidized positive prices. We also find no evidence that cost-sharing induces selection of women who need the net more: those who pay higher prices appear no sicker than the average prenatal client in the area in terms of measured anemia (an important indicator of malaria). Cost-sharing does, however, considerably dampen demand. We find that uptake drops by 75 percent when the price of ITNs increases from zero to $0.75 (i.e. from 100 to 87.5 percent subsidy), the price at which ITNs are currently sold to pregnant women in Kenya. We combine our estimates in a cost-effectiveness analysis of ITN prices on child mortality that incorporates both private and social returns to ITN usage. Overall, our results suggest that free distribution of ITNs could save many more lives than cost-sharing programs have achieved so far, and, given the large positive externality associated with widespread usage of ITNs, it would likely do so at a lesser cost per life saved.

WP 14428

Douglas Almond, Bhashkar Mazumder

The Effects of Maternal Fasting During Ramadan on Birth and Adult Outcomes

We use the Islamic holy month of Ramadan as a natural experiment for evaluating the short and long-term effects of fasting during pregnancy. Using Michigan natality data we show that in utero exposure to Ramadan among Arab births results in lower birthweight and reduced gestation length. Preconception exposure to Ramadan is also associated with fewer male births. Using Census data in Uganda we also find that Muslims who were born nine months after Ramadan are 22 percent (p =0.02) more likely to be disabled as adults. Effects are found for vision, hearing, and especially for mental (or learning) disabilities. This may reflect the persistent effect of disruptions to early fetal development. We find no evidence that negative selection in conceptions during Ramadan accounts for our results. Nevertheless, caution in interpreting these results is warranted until our findings are corroborated in other settings.

WP 14462

Dora Costa

The Rise of Retirement Among African Americans: Wealth and Social Security Effects

I examine the effects of an unearned income transfer on the retirement rates and living arrangements of a very poor population by studying the effects of pensions on the decisions of black Union Army veterans. I find that blacks were 2 to 5 times as responsive as whites to income transfers in their retirement decisions and 6 to 8 times as responsive in their choice of independent living arrangements. I argue that blacks' greater poverty explains their responsiveness to pensions. My findings have implications for understanding racial differences in trends in retirement and independent living. I show that the retirement rates of both blacks and whites rose between 1900 and 1930 but that convergence in black and white rates and in living arrangements only occurred between 1930 and 1950. I argue that income effects from the institution of Social Security explain up to half of the convergence in black-white retirement rates and in living arrangements.



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