2015, No. 1

Abstracts of Selected Recent NBER Working Papers

WP 20359
Michael Geruso, Thomas McGuire
Tradeoffs in the Design of Health Plan Payment Systems: Fit, Power, and Balance
In many markets, including the new U.S. Exchanges, health plans are paid by risk-adjusted capitation, in some markets combined with reinsurance and other payment features. This paper proposes three metrics for grading these complex payment systems: fit, power, and balance, each of which addresses a distinct market failure in health insurance. We implement these metrics in a study of Exchange payment systems with data similar to that used to develop the Exchange risk adjustment scheme and describe the tradeoffs among the metrics. We find that a simple reinsurance system scores better on fit, power and balance than the risk adjustment formula in use in the Exchanges.

WP 20400
Janet Currie, Ishita Rajani
Within-Mother Estimates of the Effects of WIC on Birth Outcomes in New York City
There is a large literature suggesting that "WIC works" to improve birth outcomes. However, methodological limitations related to selection into the WIC program have left room for doubt about this conclusion. This paper uses birth records from New York City to address the limitations of the previous literature. We estimate models with mother fixed effects to control for fixed characteristics of mothers and we directly investigate the way that time-varying characteristics of mothers affect selection into the WIC program. We find that WIC is associated with reductions in low birth weight, even among full term infants, and with reductions in the probability that a child is "small for dates." These improvements are associated with a reduction in the probability that the mother gained too little weight during pregnancy. Improvements tend to be largest for first born children. We also find that women on WIC are more likely to be diagnosed with chronic conditions, and receive more intensive medical services, a finding that may reflect improved access to medical care.

WP 20462
Jonathan Gruber, Robin McKnight
Controlling Health Care Costs Through Limited Network Insurance Plans: Evidence from Massachusetts State Employees
Recent years have seen enormous growth in limited network plans that restrict patient choice of provider, particularly through state exchanges under the ACA. Opposition to such plans is based on concerns that restrictions on provider choice will harm patient care. We explore this issue in the context of the Massachusetts GIC, the insurance plan for state employees, which recently introduced a major financial incentive to choose limited network plans for one group of enrollees and not another. We use a quasi-experimental analysis based on the universe of claims data over a three-year period for GIC enrollees. We find that enrollees are very price sensitive in their decision to enroll in limited network plans, with the state's three month "premium holiday" for limited network plans leading 10% of eligible employees to switch to such plans. We find that those who switched spent considerably less on medical care; spending fell by almost 40% for the marginal complier. This reflects both reductions in quantity of services used and prices paid per service. But spending on primary care actually rose for switchers; the reduction in spending came entirely from spending on specialists and on hospital care, including emergency rooms. We find that distance traveled falls for primary care and rises for tertiary care, although there is no evidence of a decrease in the quality of hospitals used by patients. The basic results hold even for the sickest patients, suggesting that limited network plans are saving money by directing care towards primary care and away from downstream spending. We find such savings only for those whose primary care physicians are included in limited network plans, however, suggesting that networks that are particularly restrictive on primary care access may fare less well than those that impose only stronger downstream restrictions.

WP 20470
Marika Cabral, Michael Geruso, Neale Mahoney
Does Privatized Health Insurance Benefit Patients or Producers? Evidence from Medicare Advantage
The debate over privatizing Medicare stems from a fundamental disagreement about whether privatization would primarily generate consumer surplus for individuals or producer surplus for insurance companies and health care providers. This paper investigates this question by studying an existing form of privatized Medicare called Medicare Advantage (MA). Using difference-in-differences variation brought about by payment floors established by the 2000 Benefits Improvement and Protection Act, we find that for each dollar in increased capitation payments, MA insurers reduced premiums to individuals by 45 cents and increased the actuarial value of benefits by 8 cents. Using administrative data on the near-universe of Medicare beneficiaries, we show that advantageous selection into MA cannot explain this incomplete pass-through. Instead, our evidence suggests that insurer market power is an important determinant of the division of surplus, with premium pass-through rates of 13% in the least competitive markets and 74% in the markets with the most competition.

WP 20499
Ann Bartel, Carri Chan, Song-Hee (Hailey) Kim
Should Hospitals Keep their Patients Longer? The Role of Inpatient and Outpatient Care in Reducing Readmissions?
Twenty percent of Medicare patients are readmitted to the hospital within 30 days of discharge, resulting in substantial costs to the U.S. government. As part of the 2010 Affordable Care Act, the Hospital Readmissions Reduction Program financially penalizes hospitals with higher than expected readmissions. Utilizing data on the over 6.6 million Medicare patients treated between 2008 and 2011, we estimate the reductions in readmission and mortality rates of an inpatient intervention (keeping patients in the hospital for an extra day) versus providing outpatient interventions. We find that for heart failure patients, the inpatient and outpatient interventions have practically identical impact on reducing readmissions. For heart attack and pneumonia patients, keeping patients for one more day can potentially save 5 to 6 times as many lives over outpatient programs. Moreover, we find that even if the outpatient programs were cost-free, incurring the additional costs of an extra day may be a more cost-effective option to save lives. While some outpatient programs can be very effective at reducing hospital readmissions, we find that inpatient interventions can be just as, if not more, effective.

WP 20534
Jason Fletcher, Leora Horwitz, Elizabeth Bradley
Estimating the Value Added of Attending Physicians on Patient Outcomes
Despite increasing calls for value-based payments, existing methodologies for determining physicians' "value added" to patient health outcomes have important limitations. We incorporate methods from the value added literature in education research into a health care setting to present the first value added estimates of health care providers in the literature. Like teacher value added measures that calculate student test score gains, we estimate physician value added based on changes in health status during the course of a hospitalization. We then tie our measures of physician value added to patient outcomes, including length of hospital stay, total charges, health status at discharge, and readmission. The estimated value added varied substantially across physicians and was highly stable for individual physicians. Patients of physicians in the 75th versus 25th percentile of value added had, on average, shorter length of stay (4.76 vs 5.08 days), lower total costs ($17,811 vs $19,822) and higher discharge health status (8% of a standard deviation). Our findings provide evidence to support a new method of determining physician value added in the context of inpatient care that could have wide applicability across health care setting and in estimating value added of other health care providers (nurses, staff, etc).

WP 20537
Hefei Wen, Jason Hockenberry, Janet Cummings
The Effect of Substance Use Disorder Treatment Use on Crime: Evidence from Public Insurance Expansions and Health Insurance Parity Mandates
We examine the effect of increasing the substance use disorder (SUD) treatment rate on reducing violent and property crime rates, based on coun-ty-level panels of SUD treatment and crime data between 2001 and 2008 across the United States. To address the potential endogeneity of the SUD treatment rate with respect to crime rate, we exploit the exogenous variation in the SUD treatment rate induced by two state-level policies, namely insurance expansions under the Health Insurance Flexibility and Accountability (HIFA) waivers and parity mandates for SUD treatment. Once we address the endogeneity issue, we are able to demonstrate an economically meaningful reduction in the rates of robbery, aggravated assault and larceny theft attributable to an increased SUD treatment rate. A back-of-the-envelope calculation shows that a 10 percent relative increase in the SUD treatment rate at an average cost of $1.6 billion yields a crime reduction benefit of $2.5 billion to $4.8 billion. Our findings suggest that expanding insurance coverage and benefits for SUD treatment is an effective policy lever to improve treatment use, and the improved SUD treatment use can effectively and cost-effectively promote public safety through crime reduction.

WP 20546
Alan Gustman, Thomas Steinmeier, Nahid Tabatabai
Distributional Effects of Means Testing Social Security: An Exploratory Analysis
This paper examines the distributional implications of introducing additional means testing of Social Security benefits where proceeds are used to help balance Social Security's finances. Benefits of the top quarter of households ranked according to the relevant measure of means are reduced using a modified version of the Social Security Windfall Elimination Provision (WEP). The replacement rate in the first bracket of the benefit formula, determining the Primary Insurance Amount (PIA), would be reduced from 90 percent to 40 percent of Average Indexed Monthly Earnings (AIME). Four measures of means are considered: total wealth; an annualized measure of AIME; the wealth value of pensions; and a measure of average indexed lifetime W2 earnings. The empirical analysis is based on data from the Health and Retirement Study. These means tests would reduce total lifetime household benefits by 7 to 9 percentage points. We find that the basis for means testing Social Security makes a substantial difference as to which households have their benefits reduced, and that different means tests may have different effects on the benefits of families in similar circumstance. We also find that the measure of means used to evaluate the effects of a means test makes a considerable difference as to how one would view the effects of the means test on the distribution of benefits.

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