Pre-existing problems

Kevin Lewis

May 15, 2019

Entrepreneurship and Job Lock: The Interaction Between Tax Subsidies and Health Insurance Regulations
Sayeh Nikpay
Contemporary Economic Policy, forthcoming


This paper demonstrates that health insurance tax subsidies increase self‐employment, but that the effect differs substantially based on nongroup market regulations and health status. Using the Panel Study of Income Dynamics, I show that households that cannot purchase health insurance because of a preexisting condition do not respond to tax subsidies in states in which they would be denied insurance, but they respond strongly in states in which they face risk‐rated premiums. Households respond similarly to tax subsidies in states with nongroup market regulations similar to those established by the Affordable Care Act, regardless of preexisting conditions.

Zero-Premium Health Insurance Plans Became More Prevalent In Federal Marketplaces In 2018
Douglas Keith Branham & Thomas DeLeire
Health Affairs, May 2019, Pages 820-825 


The Affordable Care Act established two federally funded subsidies — cost-sharing reductions and premium tax credits — available in the health insurance Marketplaces. In 2018 federal payments to insurers for cost-sharing reductions were terminated. Insurers responded by increasing plan premiums to account for the loss of these payments. Premiums for silver plans were increased more than those for other metal tiers because cost-sharing reductions are available only in silver plans, while premium tax credits can be applied across different metal tiers. One consequence of greater premium increases for silver plans was the increased availability and selection of plans with zero premiums for consumers. We examined the magnitude of this issue using plan selections through the federal Marketplaces during the open enrollment periods before (2017) and after (2018) the termination of payments. We found that zero-premium plan availability increased by 18.3 percentage points, selection increased by 7.9 percentage points, and selection conditional on having a zero-premium plan available increased by 8.8 percentage points. Were federal cost-sharing reduction payments to be restored, a reduction in availability and selection of zero-premium plans would likely occur, and more consumers could lose access to the plans.

Association of State Medicaid Expansion Status With Low Birth Weight and Preterm Birth
Clare Brown et al.
Journal of the American Medical Association, 23/30 April 2019, Pages 1598-1609

Design, Setting, and Participants: Using US population-based data from the National Center for Health Statistics Birth Data Files (2011-2016), difference-in-differences (DID) and difference-in-difference-in-differences (DDD) models were estimated using multivariable linear probability regressions to compare birth outcomes among infants in Medicaid expansion states relative to non–Medicaid expansion states and changes in relative disparities among racial/ethnic minorities for singleton live births to women aged 19 years and older.

Results: The final sample of 15 631 174 births (white infants: 8 244 924, black infants: 2 201 658, and Hispanic infants: 3 944 665) came from the District of Columbia and 18 states that expanded Medicaid (n = 8 530 751) and 17 states that did not (n = 7 100 423). In the DID analyses, there were no significant changes in preterm birth in expansion relative to nonexpansion states (preexpansion to postexpansion period, 6.80% to 6.67% [difference: −0.12] vs 7.86% to 7.78% [difference: −0.08]; adjusted DID: 0.00 percentage points [95% CI, −0.14 to 0.15], P = .98), very preterm birth (0.87% to 0.83% [difference: −0.04] vs 1.02% to 1.03% [difference: 0.01]; adjusted DID: −0.02 percentage points [95% CI, −0.05 to 0.02], P = .37), low birth weight (5.41% to 5.36% [difference: −0.05] vs 6.06% to 6.18% [difference: 0.11]; adjusted DID: −0.08 percentage points [95% CI, −0.20 to 0.04], P = .20), or very low birth weight (0.76% to 0.72% [difference: −0.03] vs 0.88% to 0.90% [difference: 0.02]; adjusted DID: −0.03 percentage points [95% CI, −0.06 to 0.01], P = .14). Disparities for black infants relative to white infants in Medicaid expansion states compared with nonexpansion states declined for all 4 outcomes, indicated by a negative DDD coefficient for preterm birth (−0.43 percentage points [95% CI, −0.84 to −0.02], P = .05), very preterm birth (−0.14 percentage points [95% CI, −0.26 to −0.02], P = .03), low birth weight (−0.53 percentage points [95% CI, −0.96 to −0.10], P = .02), and very low birth weight (−0.13 percentage points [95% CI, −0.25 to −0.01], P = .04). There were no changes in relative disparities for Hispanic infants.

Conclusions and Relevance: Based on data from 2011-2016, state Medicaid expansion was not significantly associated with differences in rates of low birth weight or preterm birth outcomes overall, although there were significant improvements in relative disparities for black infants compared with white infants in states that expanded Medicaid vs those that did not.

Regulating quack medicine
Peter Leeson, Scott King & Tate Fegley
Public Choice, forthcoming


Quack medicines were prepackaged, commercially marketed medicinal concoctions brewed from “secret recipes” that often contained powerful drugs. Governmental regulation of them in late nineteenth-century England is heralded as a landmark of public health policy. We argue that it’s instead a landmark of medicinal rent-seeking. We develop a theory of quack medicine regulation in Victorian England according to which health professionals faced growing competition from close substitutes: quack medicine vendors. To protect their rents, health professionals organized, lobbied, and won laws granting them a monopoly over the sale of “poisonous” medicaments, most notably, quack medicines.

Public Insurance and Corporate Investment: Evidence from ACA Medicaid Expansion
John (Jianqiu) Bai, Wang Jin & Yue Qiu
MIT Working Paper, March 2019


We exploit the implementation of state-level ACA Medicaid expansion to study the effect of public insurance on corporate investment. We focus on the U.S. manufacturing sector. We find that the expansion of Medicaid leads to an increase in employment and a decrease in capital investment, particularly new machinery and computer related spending, at the plant level. Our results are consistent with the notion that expanding public insurance facilitates the matches between employees and employers and firms adjust capital investment policies as a response.

An Insurer’s Program To Incentivize Generic Oncology Drugs Did Not Alter Treatment Patterns Or Spending On Care
Laura Yasaitis et al.
Health Affairs, May 2019, Pages 812-819


The high and rising costs of anticancer drugs have received national attention. The prices of brand-name anticancer drugs often dwarf those of established generic drugs with similar efficacy. In 2007–16 UnitedHealthcare sought to encourage the use of several common low-cost generic anticancer drugs by offering providers a voluntary incentivized fee schedule with substantially higher generic drug payments (and profit margins), thereby increasing financial equivalence for providers in the choice between generic and brand-name drugs and regimens. We evaluated how this voluntary payment intervention affected treatment patterns and health care spending among enrollees with breast, lung, or colorectal cancer. We found that the incentivized fee schedule had neither significant nor meaningful effects on the use of incentivized generic drugs or on spending. Practices that adopted the incentivized fee schedule already had higher rates of generic anticancer drug use before switching, which demonstrates selection bias in take-up. Our study provides cautionary evidence of the limitations of voluntary payment reform initiatives in meaningfully affecting health care practice and spending.

Risk-Mitigating Technologies: The Case of Radiation Diagnostic Devices
Alberto Galasso & Hong Luo
Harvard Working Paper, April 2019


We study the impact of consumers’ risk perception on firm innovation. Our analysis exploits a major surge in the perceived risk of radiation diagnostic devices, following extensive media coverage of a set of over-radiation accidents involving CT scanners in late 2009. Difference-in-differences regressions using data on patents and FDA product clearances show that the increased perception of radiation risk spurred the development of new technologies that mitigated such risk and led to a greater number of new products. We provide qualitative evidence and describe patterns of equipment usage and upgrade that are consistent with this mechanism. Our analysis suggests that changes in risk perception can be an important driver of innovation and shape the direction of technological progress.

Should We Do More To Police Medicaid Fraud? Evidence on the Intended and Unintended Consequences of Expanded Enforcement
Victoria Perez & Coady Wing
American Journal of Health Economics, forthcoming


Medicaid Fraud Control Units (MFCUs) are state agencies that investigate and prosecute health care provider fraud, using billing data to decide who to investigate. In particular, providers that submit a large number of claims for a set of fraud prone services are more likely to be investigated. We study the effect of within-state changes in MFCU spending on enforcement outcomes and hospital treatment intensity for fraud prone health conditions in the Medicaid population. We find that increases in MFCU spending substantially increase fraud enforcement actions (investigations, convictions, recoveries). In contrast, MFCU spending increases do not generate substantial changes in treatment intensity for fraud prone health conditions. We find no evidence that MFCUs with expanded budgets investigate less severe cases on the margin.

Limited Medigap Consumer Protections Are Associated With Higher Reenrollment In Medicare Advantage Plans
David Meyers, Amal Trivedi & Vincent Mor
Health Affairs, May 2019, Pages 782-787


In all but eight states, Medicare supplemental coverage (or Medigap) plans may deny coverage or charge higher premiums on the basis of preexisting health conditions. This may particularly affect chronically ill or high-need Medicare Advantage enrollees who switch to traditional Medicare and subsequently discover that they are unable to purchase affordable Medigap coverage. We found that in states with no Medigap consumer protections, high-need Medicare Advantage enrollees had a 16.9-percentage-point higher reenrollment rate in Medicare Advantage in the year after switching to traditional Medicare, compared to high-need enrollees in states with strong Medigap consumer protections—namely, guaranteed issue and community rating (charging all enrollees the same premium regardless of health condition). Expanding protections in the Medigap market may increase consumers’ access to this type of supplemental coverage.

The Returns to Early-life Interventions for Very Low Birth Weight Children
Eric Chyn, Samantha Gold & Justine Hastings
NBER Working Paper, April 2019


We use comprehensive administrative data from Rhode Island to measure the impact of early-life interventions for low birth weight newborns on later-life outcomes. We use a regression discontinuity design based on the 1,500-gram threshold for Very Low Birth Weight (VLBW) status. We show that threshold crossing causes more intense in-hospital care, in line with prior studies. Threshold crossing also causes a 0.34 standard deviation increase in test scores in elementary and middle school, a 17.1 percentage point increase in the probability of college enrollment, and $66,997 decrease in social program expenditures by age 14. We explore potential mechanisms driving these impacts.

Medical Innovation, Education, and Labor Market Outcomes of Cancer Patients
Sung-Hee Jeon & Vincent Pohl
University of Georgia Working Paper, March 2019


Innovations in cancer treatment have lowered mortality, but little is known about their economic benefits. We assess the effect of two decades of improvement in cancer treatment options on the labor market outcomes of breast and prostate cancer patients. In addition, we compare this effect across cancer patients with different levels of educational attainment. We estimate the effect of medical innovation on cancer patients’ labor market outcomes employing tax return and cancer registry data from Canada and measuring medical innovation by using the number of approved drugs and a quality-adjusted patent index. While cancer patients are less likely to work after their diagnosis, we find that the innovations in cancer treatment during the 1990s and 2000s reduced the negative employment effects of cancer by 63% to 70%. These benefits of medical innovation are limited to cancer patients with postsecondary education, raising concerns about unequal access to improved treatment options.

Heterogeneous Effects of the ACA Medicaid Expansion on Hospital Financial Outcomes
Jordan Rhodes et al.
Contemporary Economic Policy, forthcoming


This study examines the effect of the Affordable Care Act's Medicaid expansion on hospital financial outcomes. A key innovation relative to prior studies is that we explicitly account for heterogeneity across states in the timing and extent of the expansion as well as across hospital types. We find that Medicaid expansion led to a decrease in uncompensated care expenditures and an increase in average operating margins. The effects were larger in states where the Medicaid expansion led to a greater increase in program eligibility. Operating margins improved most for public hospitals and facilities located in rural areas.

Employed for Higher Pay? How Medicare Payment Rules Affect Hospital Employment of Physicians
David Dranove & Christopher Ody
American Economic Journal: Economic Policy, forthcoming


Hospitals employ an increasing number of physicians and bill for a growing share of outpatient procedures. We exploit a plausibly exogenous increase in Medicare prices for hospital employed physicians relative to Medicare prices for other physicians to illustrate payer reimbursement rules explain part of this trend. The shock we study explains 20 percent of the increase in physician employment and 75 percent of the increase in hospital-billed outpatient procedures between 2009 and 2013.

The Distortionary Effects of the Health Insurance Tax Exclusion
David Powell
American Journal of Health Economics, forthcoming


The tax exclusion of health insurance premiums represents the largest source of tax expenditures in the United States while reducing the after-tax price of insurance for the majority of households. This paper provides theoretical and empirical evidence about the tax subsidy's effects on a host of outcomes, including coverage generosity, the cost-sharing schedule, the distribution of medical care expenditures, mean medical care expenditures, and average insurer payments. I identify the effects of the tax subsidy solely exploiting legislative tax schedule changes and the differential effects they have on households. I find large effects on all dimensions, including coverage generosity at low levels of annual expenditures as well as overall medical care expenditures and insurer payments. The results imply the tax subsidy annually leads to deadweight loss of over $40 billion.


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