Effects of Medicare Payment Reform: Evidence from the Home Health Interim and Prospective Payment Systems, by Peter J. Huckfeldt, Neeraj Sood, José J Escarce, David C. Grabowski and Joseph P. Newhouse (The National Bureau of Economic Research)
Medicare continues to implement payment reforms that shift reimbursement from fee-for-service towards episode-based payment, affecting average and marginal reimbursement. We contrast the effects of two reforms for home health agencies. The Home Health Interim Payment System in 1997 lowered both types of reimbursement; our conceptual model predicts a decline in the likelihood of use and costs, both of which we find. The Home Health Prospective Payment System in 2000 raised average but lowered marginal reimbursement with theoretically ambiguous effects; we find a modest increase in use and costs. We find little substantive effect of either policy on readmissions or mortality.
Insurance as Delegated Purchasing: Theory and Evidence from Health Care, by Robin McKnight, Jonathan Reuter and Eric Zitzewitz (The National Bureau of Economic Research)
Household demand for actuarially unfair insurance against small risks has long puzzled economists. One way to potentially rationalize this demand is to recognize that (non-life) insurance is an incentive-compatible means of engaging an expert buyer. To quantify the benefits of expert buying, we compare prices paid by the insured and uninsured for health care. In categories of health care where uncompensated care is more difficult to obtain (drugs, doctor office visits, and hospital outpatient visits), we find that insurers pay 10-20% less than the uninsured. For forms of care where payment by the uninsured is more likely to be negotiated after services are rendered (hospitalizations and emergency room visits) the uninsured pay about 30% less on average, due largely to the nontrivial share of uninsured who pay 5% or less of their billed charges. At least in settings where free services are difficult to obtain, expert buying is an important benefit of insurance. We discuss the implications of the delegated-purchasing view of insurance for con-sumer-driven health insurance and for self-insurance by employers.