Abstracts of Selected Recent NBER Working Papers

WP 19793
Timothy Moore
The Employment Effect of Terminating Disability Benefits

While time out of work normally decreases subsequent employment, Social Security Disability Insurance (DI) may improve the health of disabled individuals and increase their ability to work. In this paper, I examine the employment of individuals who lost DI eligibility after the 1996 removal of drug and alcohol addictions as qualifying conditions. Approximately one-fifth started earning at levels that would have disqualified them for DI, an employment response that is large relative to their work histories. This response is largest for those who had received DI for 2.5–3 years, when it is 50% larger than for those who had received DI for less than one year and 30% larger than for those who had received DI for six years. A similar relationship between time on DI and the employment response is found among those whose primary disability was an addiction, mental disorder, or musculoskeletal condition, but not those with chronic conditions like heart or liver disease. The results suggest that a period of public assistance can maximize the employment of some disabled individuals.

WP 19884
Jessamyn Schaller, Ann Huff Stevens
Short-Run Effects of Job Loss on Health Conditions, Health Insurance, and Health Care Utilization

Job loss in the United States is associated with long-term reductions in income and long-term increases in mortality rates. This paper examines the short- to medium-term changes in health, health care access, and health care utilization after job loss that lead to these long-term effects. Using a sample with more than 9800 individual job losses and longitudinal data on a wide variety of health-related measures and outcomes, we show that job loss results in worse self-reported health, including mental health, but is not associated with statistically significant increases in a variety of specific chronic conditions. Among the full sample of workers, we see reductions in insurance coverage, but little evidence of reductions in health care utilization after job loss. Among the subset of displaced workers for whom the lost job was their primary source of insurance we do see reductions in doctor’s visits and prescription drug usage. These results suggest that access to health insurance and care may be an important part of the health effects of job loss for some workers. The pattern of results is also consistent with a significant role for stress in generating long-term health consequences after job loss.

WP 19954
Silvia Barcellos, Mireille Jacobsen
The Effects of Medicare on Medical Expenditure Risk and Financial Strain

We estimate the current impact of Medicare on medical expenditure risk and financial strain. At age 65, out-of-pocket expenditures drop by 33% at the mean and 53% among the top 5% of spenders. The fraction of the population with out- of-pocket medical expenditures above income drops by more than half. Medical- related financial strain, such as problems paying bills, is dramatically reduced. Using a stylized expected utility framework, the gain from reducing out-of-pocket expenditures alone accounts for 18% of the social costs of financing Medicare. This calculation ignores the benefits of reduced financial strain and direct health improvements due to Medicare.

WP 20017
Jason Hockenberry, Lorens Helmchen
The Nature of Surgeon Human Capital Depreciation

To test how practice interruptions affect worker productivity, we estimate how temporal breaks affect surgeons' performance of coronary artery bypass grafting (CABG). Using a sample of 188 surgeons who performed 56,315 CABG procedures in Pennsylvania between 2006 and 2010, we find that a surgeon's additional day away from the operating room raised patients' inpatient mortality risk by up to 0.067 percentage points (2.4% relative effect) but reduced total hospitalization costs by up to 0.59 percentage points. In analyses of 93 high-volume surgeons treating 9,853 patients admitted via an emergency department, where temporal distance effects are most plausibly exogenous, an additional day away raised mortality risk by 0.398 percentage points (11.4% relative effect) but reduced cost by up to 1.396 percentage points. These estimates imply a cost per life-year saved ranging from $7,871 to $18,500, rendering additional treatment intensity within surgery cost-effective at conventional cutoffs. Our findings are consistent with the hypothesis that after returning from temporal breaks surgeons may be less likely to recognize and address life-threatening complications, in turn reducing resource use. This form of human capital loss would explain the decrease in worker productivity and the simultaneous reduction in input use.

WP 20021
Joseph Newhouse, Mary Price, J. Michael McWilliams, John Hsu, Thomas McGuire
How Much Favorable Selection Is Left in Medicare Advantage?

There are two types of selection models in the health economics literature. One focuses on choice between a fixed set of contracts. Consumers with greater demand for medical care services prefer contracts with more generous reimbursement, resulting in a suboptimal proportion of consumers in such contracts in equilibrium. In extreme cases more generous contracts may disappear (the "death spiral"). In the other model insurers tailor the contracts they offer consumers to attract profitable consumers. An equilibrium may or may not exist in such models, but if it exists it is not first best. The Medicare Advantage program offers an opportunity to study these models empirically, although unlike the models in the economics literature there is a regulator with various tools to address selection. One such tool is risk adjustment, or making budget neutral transfers among insurers using observable characteristics of enrollees that predict spending. Medicare drastically changed its risk adjustment program starting in 2004 and made a number of other changes to reduce selection as well. Previous work has argued that the changes worsened selection. We show, using a much larger data set, that this was not the case, but that some inherent selection may remain.

WP 20132
John List, Anya Samek
The Behavioralist as Nutritionist: Leveraging Behavioral Economic to Improve Child Food Choice and Consumption

Childhood obesity has reached epidemic proportions in the U.S., with now almost a third of children ages 2–19 deemed overweight or obese. In this study, we leverage recent findings from behavioral economics to explore new approaches to tackling one aspect of childhood obesity: food choice and consumption. Using a field experiment where we include more than 1,500 children, we report several key insights. First, we find that individual incentives can have large influences: in the control, only 17% of children prefer the healthy snack, whereas the introduction of small incentives increases take-up of the healthy snack to roughly 75%, more than a four-fold increase. There is some evidence that the effects continue after the treatment period, consistent with a model of habit formation. Second, we find little evidence that the framing of incentives (loss versus gain) matters. While incentives work, we find that educational messaging alone has little influence on food choice. Yet, we do observe an important interaction effect between messaging and incentives: together they provide an important influence on food choice. For policymakers, our findings show the power of using incentives to combat childhood obesity. For academics, our approach opens up an interesting combination of theory and experiment that can lead to a better understanding of theories that explain healthy decisions and what incentives can influence them.

WP 20137
Robert Clark, Annamaria Lusardi, Olivia Mitchell
Financial Knowledge and 401(k) Investment Performance

Using a unique new dataset linking administrative data on investment performance and financial knowledge, we examine whether investors who are more financially knowledgeable earn more on their retirement plan investments, compared to their less sophisticated counterparts. We find that risk-adjusted annual expected returns are 130 basis points higher for the most financially knowledgeable employees, and those scoring higher on our Financial Knowledge Index have slightly more volatile portfolios while they do no better diversifying their portfolios than their peers. Overall, financial knowledge does appear to help people invest more profitably; this may provide a rationale for efforts to enhance financial knowledge in the population at large.

WP 20159
Seth Freedman, Haizhen Lin, and Kosali Simon
Public Health Insurance Expansions and Hospital Technology Adoption

This paper explores the effects of public health insurance expansions on hospitals’ decisions to adopt medical technology. Specifically, we test whether the expansion of Medicaid eligibility for pregnant women during the 1980s and 1990s affects hospitals' decisions to adopt neonatal intensive care units (NICUs). While the Medicaid expansion provided new insurance to a substantial number of pregnant women, prior literature also finds that some newly insured women would otherwise have been covered by more generously reimbursed private sources. This leads to a theoretically ambiguous net effect of Medicaid expansion on a hospital's incentive to invest in technology. Using American Hospital Association data, we find that on average, Medicaid expansion has no statistically significant effect on NICU adoption. However, we find that in geographic areas where more of the newly Medicaid-insured may have come from the privately insured population, Medicaid expansion slows NICU adoption. This holds true particularly when Medicaid payment rates are very low relative to private payment rates. This finding is consistent with prior evidence on reduced NICU adoption from increased managed-care penetration. We conclude by providing suggestive evidence on the health impacts of this deceleration of NICU diffusion, and by discussing the policy implications of our work for insurance expansions associated with the Affordable Care Act.

WP 20181
Christopher Afendulis, Anna Sinaiko, Richard Frank
Dominated Choices and Medicare
Advantage Enrollment

Research in behavioral economics suggests that certain circumstances, such as large numbers of complex options or revisiting prior choices, can lead to decision errors. This paper explores the enrollment decisions of Medicare beneficiaries in the Medicare Advantage (MA) program. During the time period we study (2007–10), private fee-for-service (PFFS) plans offered enhanced benefits beyond those of traditional Medicare (TM) without any restrictions on physician networks or additional cost, making TM a dominated choice relative to PFFS. Yet more than three quarters of Medicare beneficiaries remained in TM during our study period. We explore two possible explanations for this behavior: status quo bias and choice overload. Our results suggest that status quo bias plays an important role; the rate of MA enrollment was significantly higher among new Medicare beneficiaries than among incumbents. Our results also provide some evidence of choice overload; while the MA enrollment rate did not decline with an increase in the number of plans, among incumbent beneficiaries it failed to increase. Our results illustrate the importance of the choice environment that is in place when enrollees first enter the Medicare program.

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