• Reading list

    Modeling the Impact of Medicare Advantage Payment Cuts on Ambulatory Care Sensitive and Elective Hospitalizations, by Lauren Hersch Nicholas (HSR)

    Objective. To assess relationships between changes in Medicare Advantage (MA) payment rates and Medicare beneficiary hospitalizations and to simulate the effects of scheduled payment cuts on ambulatory care sensitive (ACS) and elective hospitalization rates.

    Data. State Inpatient Database discharge abstracts from Arizona, Florida, and New York merged with administrative Medicare enrollment and MA payment data.

    Study Design. Retrospective, fixed effect regression analysis of the relationship between MA payment rates and rates of ACS and elective hospitalizations among Medicare beneficiaries in counties with at least 10,000 Medicare beneficiaries and 3 percent MA penetration from 1999 to 2005.

    Principal Findings. MA payment rates were negatively related to rates of ACS admissions. Simulations suggest that payment cuts could be associated with higher rates of ACS admissions. No relationship between MA payments and rates of elective hospitalizations was found.

    Conclusions. Reductions in MA payment rates may result in a small increase in ACS admissions. Trends in ACS admissions among chronically ill Medicare beneficiaries should be tracked following MA payment cuts.

    The Impact of Medicare Part D on Out-of-Pocket Costs for Prescription Drugs, Medication Utilization, Health Resource Utilization, and Preference-Based Health Utility, by Frank Xiaoqing Liu, G. Caleb Alexander, Stephanie Y. Crawford, A. Simon Pickard, Donald Hedeker, and Surrey M. Walton (HSR)

    Objectives. To quantify the impact of Medicare Part D eligibility on medication utilization, emergency department use, hospitalization, and preference-based health utility among civilian noninstitutionalized Medicare beneficiaries.

    Study Design. Difference-in-differences analyses were used to estimate the effects of Part D eligibility on health outcomes by comparing a 12-month period before and after Part D implementation using the Medical Expenditure Panel Survey. Models adjusted for sociodemographic characteristics and health status and compared Medicare beneficiaries aged 65 and older with near elderly aged 55–63 years old.

    Principal Findings. Five hundred and fifty-six elderly and 549 near elderly were included. After adjustment, Part D was associated with a U.S.$179.86 (p=.034) reduction in out-of-pocket costs and an increase of 2.05 prescriptions (p=.081) per patient year. The associations between Part D and emergency department use, hospitalizations, and preference-based health utility did not suggest cost offsets and were not statistically significant.

    Conclusions. Although there was a substantial reduction in out-of-pocket costs and a moderate increase in medication utilization among Medicare beneficiaries during the first year after Part D, there was no evidence of improvement in emergency department use, hospitalizations, or preference-based health utility for those eligible for Part D during its first year of implementation.

    The Lerner Index of Monopoly Power: Origins and Uses, by Kenneth G. Elzinga and David E. Mills (AER)

    Abba Lerner’s paper in the Review of Economic Studies (1934) is the source of what is now referred to as the Lerner Index of monopoly power. The Lerner Index has become the standard measure of monopoly power and one of the most widely cited indexes in the discipline of economics. This paper traces the origins of the index, sets out its strengths and weaknesses, and examines its role in antitrust enforcement. The Index is a better indicator of a firm’s price-setting discretion than its ability to sustain monopoly prices.

    Part D Formulary and Benefit Design as a Risk-Steering Mechanism, by Dana P. Goldman, Geoffrey F. Joyce and William B. Vogt

    Medicare Part D relies upon drug plan competition. Plans have enormous scope to design benefits and to set premiums, but they may not charge differential premiums based on risk. We use the formulary and benefit design of all Medicare prescription drug plans and pharmacy claims data to construct a simulation model of out-of-pocket drug spending. We use this simulation model to examine individual incentives in Medicare Part D for adverse selection. We find that high drug users have much stronger incentives to enroll in generous plans than do low users, thus there is significant scope for adverse selection.

    The Economics of Risky Health Behaviors, by John Cawley and Christopher Ruhm (NBER Working Paper)

    Risky health behaviors such as smoking, drinking alcohol, drug use, unprotected sex, and poor diets and sedentary lifestyles (leading to obesity) are a major source of preventable deaths. This chapter overviews the theoretical frameworks for, and empirical evidence on, the economics of risky health behaviors. It describes traditional economic approaches emphasizing utility maximization that, under certain assumptions, result in Pareto-optimal outcomes and a limited role for policy interventions. It also details nontraditional models (e.g. involving hyperbolic time discounting or bounded rationality) that even without market imperfections can result in suboptimal outcomes for which government intervention has greater potential to increase social welfare. The chapter summarizes the literature on the consequences of risky health behaviors for economic outcomes such as medical care costs, educational attainment, employment, wages, and crime. It also reviews the research on policies and strategies with the potential to modify risky health behaviors, such as taxes or subsidies, cash incentives, restrictions on purchase and use, providing information and restricting advertising. The chapter concludes with suggestions for future research.

    Life and Growth, by Charles I. Jones (NBER Working Paper)

    Some technologies save lives — new vaccines, new surgical techniques, safer highways. Others threaten lives — pollution, nuclear accidents, global warming, the rapid global transmission of disease, and bioengineered viruses. How is growth theory altered when technologies involve life and death instead of just higher consumption? This paper shows that taking life into account has first-order consequences. Under standard preferences, the value of life may rise faster than consumption, leading society to value safety over consumption growth. As a result, the optimal rate of consumption growth may be substantially lower than what is feasible, in some cases falling all the way to zero.

    Medical Spending and the Health of the Elderly, by Jack Hadley, Timothy Waidmann, Stephen Zuckerman, and Robert A. Berenson (HSR)

    Objective. To estimate the relationship between variations in medical spending and health outcomes of the elderly.

    Data Sources. 1992–2002 Medicare Current Beneficiary Surveys.

    Study Design. We used instrumental variable (IV) estimation to identify the relationships between alternative measures of elderly Medicare beneficiaries’ medical spending over a 3-year observation period and health status, measured by the Health and Activity Limitation Index (HALex) and survival status at the end of the 3 years. We used the Dartmouth Atlas End-of-Life Expenditure Index defined for hospital referral regions in 1996 as the exogenous identifying variable to construct the IVs for medical spending.

    Data Collection/Extraction Methods. The analysis sample includes 17,438 elderly (age >64) beneficiaries who entered the Medicare Current Beneficiary Survey in the fall of each year from 1991 to 1999, were not institutionalized at baseline, stayed in fee-for-service Medicare for the entire observation period, and survived for at least 2 years. Measures of baseline health were constructed from information obtained in the fall of the year the person entered the survey, and changes in health were from subsequent interviews over the entire observation period. Medicare and total medical spending were constructed from Medicare claims and self-reports of other spending over the entire observation period.

    Principal Findings. IV estimation results in a positive and statistically significant relationship between medical spending and better health: 10 percent greater medical spending over the prior 3 years (mean=U.S.$2,709) is associated with a 1.9 percent larger HALex value (p=.045; range 1.2–2.2 percent depending on medical spending measure) and a 1.5 percent greater survival probability (p=.039; range 1.2–1.7 percent).

    Conclusions. On average, greater medical spending is associated with better health status of Medicare beneficiaries, implying that across-the-board reductions in Medicare spending may result in poorer health for some beneficiaries.

    A Model Health Care Delivery System for Medicaid, by Richard E. Rieselbach, and Arthur L. Kellermann (NEJM)

    How Do Consumer-Directed Health Plans Affect Vulnerable Populations? by Amelia M. Haviland, Neeraj Sood, Roland McDevitt, M Susan Marquis (Forum for Health Economics & Policy)

    We use health care claims data from 59 large employers to estimate how consumer-directed health plans (CDHPs)—plans that combine a high deductible with personal accounts—affect health care costs and the use of preventive services by vulnerable populations. The vulnerable populations studied are those that will have increased access to health insurance under health care reform: families with high health care needs and low income families. A difference-in-difference framework is used with costs and use available for a full year before and after enrolling in a CDHP and for controls.

    Our key finding is that in almost all cases, CDHP benefit designs affect lower income populations and the chronically ill to the same extent as non-vulnerable populations. These effects include significant reductions in overall spending that increase with the level of the deductible and greater reductions for high deductible plans when paired with health savings accounts (HSAs) in comparison to health reimbursement arrangements (HRAs). However, enrollment in CDHPs also leads to reductions in care that is considered beneficial for all groups, and this may have greater health consequences for lower income and chronically ill people than for others.


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