The NBER's Program on Health Care met in Cambridge on May 3. Program Director
Alan M. Garber of Stanford University organized the meeting. These papers were discussed:
Dahlia K. Remler and Joshua Graff Zivin, Columbia University, and Sherry A. Glied, NBER
and Columbia University, "Modeling Health Insurance Expansions: Effects of Alternate
Frank R. Lichtenberg, NBER and Columbia University, "The Effect of Changes in Drug
Utilization on Labor Supply and Per Capita Output"
Jay Bhattacharya, Stanford University; Darius Lakdawalla, NBER and Rand Corporation;
and Michael Schoenbaum, Rand Corporation, "Whom Does Medicare Benefit?"
Mark Duggan, NBER and University of Chicago, "Does Contracting Out Increase the
Efficiency of Government Programs? Evidence from Medicaid HMOs" (For a description of this
paper, see "Public Economics" earlier in this issue)
Mark V. Pauly, NBER and University of Pennsylvania, and Bradley J. Herring, Yale
University, "The Demand for Health Insurance in the Group Setting: Can You Always Get What
Nancy D. Beaulieu and David M. Cutler, NBER and Harvard University, and Katherine E.
Ho, Harvard University, "Why Quality is So Poor"
Remler, Zivin, and Glied categorize and describe the different methodological
approaches used to predict the effects of proposals to increase health insurance coverage; they
explain the conceptual theoretical relationships between the of the approaches can yield
quantitatively identical predictions Finally, they illustrate the conditions under which these
approaches diverge, and the quantitative extent of that divergence. All of the modeling
approaches implicitly make assumptions about functional form that impose restrictions on
unobservable heterogeneity. Those assumptions can dramatically affect the quantitative
Lichtenberg examines the effect of changes in both the average quantity and average
vintage ("quality") of drugs consumed on labor supply, using longitudinal, condition-level data.
First, he considers the effect of changes during 1996-8 in the average number of prescriptions
consumed for a given condition on the probability of missed work days. His estimates indicate
that conditions for which there were above-average increases in prescription use tended to have
above-average reductions in the probability of missed work days. The estimated value to
employers of the reduction in missed work days appears to exceed the employer's increase in
drug cost. Using different data, Lichtenberg then examines the effect of changes during 1985-96
in the average vintage of prescriptions consumed for a condition on five different, condition-specific measures of activity limitation, including limits on ability to work. His estimates are
consistent with the hypothesis that an increase in a condition's mean drug vintage reduces the
probability that people with that condition will experience activity and work limitations, and
reduces their average number of restricted-activity days. The estimates imply that activity
limitations decline at the rate of about one percent per year of drug vintage, and that the rate of
pharmaceutical-embodied technical progress with respect to activity limitations is about 18
percent. Estimates of the cost of the increase in drug vintage necessary to achieve reductions in
activity limitations indicate that increases in drug vintage tend to be very "cost-effective."
Bhattacharya, Lakdawalla, and Schoenbaum attempt to construct the rate of return on
Medicare for various groups in the population. They focus in particular on how rates of return
vary with permanent income and education. This allows them to determine whether Medicare is
beneficial for the average person, the average disadvantaged person, or the average advantaged
person. Implicitly, they view Medicare taxes as investments in future health benefits. Whether or
not Medicare is beneficial depends on the internal rate of return on these investments. The
authors find that the internal rate of return is significantly higher for the less educated. Indeed,
the internal rate of return is less than the real rate of interest for the most educated groups, but
well above it for the least educated. As a result, less educated individuals would willingly choose
to invest in Medicare, while more educated individuals would not. This is true in spite of the fact
that less educated people do not live as long.
To what extent do health benefits obtained in the employment-based setting reflect
individual preferences? Pauly and Herring examine this question by comparing characteristics
of plans obtained in this setting to those obtained in the individual insurance market, using data
from the 1996-7 Community Tracking Study's Household Survey. They also examine the effect
of unions on group choice. Their structural models of the demand for insurance using individual-level demographic characteristics indicate that plans obtained in the group setting generally
reflect underlying preferences for insurance, although they do observe significantly different
effects of ethnicity and unionization.
Examining quality measures for care of chronically ill patients by Health Maintenance
Organizations (HMOs) suggests that there is substantial room for improvement, as well as
substantial variation among HMO plans. Beaulieu, Cutler, and Ho hypothesize several factors,
both health plan-related and market-related, that could be associated with higher or lower
performance on these chronic care measures. They then test these hypotheses in a multivariate
model. They find that HMOs in markets characterized by lower competition and a greater
presence of large employers score higher on the chronic care quality measures. Also, several
health plan characteristics are associated positively with better performance: not-for-profit tax
status; tighter physician networks; privately-held ownership; and group-model organizational
form. Socio-demographic characteristics of the market in which health plans operate and the
method by which health plans compensate their physicians have no significant influence on the
quality of care.