Transcript power point - The University of North Carolina at Chapel Hill

Prescription Drugs, Medical Care,
and Health Outcomes:
A Model of Elderly Health Dynamics
Zhou Yang, Emory University
Donna B. Gilleskie, Univ of North Carolina
Edward C. Norton, Univ of Michigan
June 23, 2008
ASHE
The Big Picture
Supplemental
Insurance,
Rx Coverage
H
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Prescription Drugs
Physician Services,
Hospitalization
Health: Morbidity, Mortality
Typical Patterns of Health Decline among the Elderly
Health
Sudden death:
“extreme” health shock
but no functional decline
Age
Terminal Illness:
good functional health
then health shock and
certain decline in function
Entry-re-entry:
chronic condition(s)
associated with multiple
health shocks and
expected decline in function
Frailty:
no health shock(s) or
serious chronic condition,
but slow decline in function
JAMA 289(18), 2003
A Preview of our Main Findings
A change from Medicare with no drug coverage
to a plan that covers prescription drugs reveals that:
• Drug expenditures over 5 years increase between 7 and 27%.
• Survival rates increase 1-2%. But the distribution of
functional status among survivors shifts toward worse health.
• Marginal survivors spend significantly more than individuals
who would have survived anyway.
• There is some contemporaneous reallocation of consumption
(a cross-price effect), but changes in consumption are largely
driven by changes in health and survival as people age.
Model of behavior of individuals age 65+
beginning
of age t
beginning
of age t+1
I t , Jt
St
At, Bt, Dt
insurance
and drug
coverage
health
shock
medical care
demand
Ωt= (Et, Ft,
At-1, Bt-1, Dt-1,
Xt,
ZIt, ZHt, ZMt )
Et+1, Ft+1
health
production
And we model the set of structural equations jointly,
allowing unobserved components to be correlated
Ωt+1= (Et+1, Ft+1,
At, Bt, Dt,
Xt+1,
ZIt+1, ZHt+1, ZMt+1 )
Empirical Model
beginning
of t
beginning
of t+1
I t , Jt
St
At, Bt, Dt
insurance
and drug
coverage
health
shock
medical care
demand
Logit: Rx coverage
Multinomial logit:
 Medicare only (parts A and B)
 Medicaid dual coverage
 Private plan supplement
 Medicare managed care plan (part C)
Et+1, Ft+1
health
production
(63%)
(conditional on private or Part C plan)
( 8%)
(12%)
(64%)
(16%)
Empirical Model
beginning
of t
beginning
of t+1
I t , Jt
Skt
At, Bt, Dt
insurance
and drug
coverage
health
shock(s)
medical care
demand
Et+1, Ft+1
health
production
Separate logits:
 Heart/stroke event (ICD-9 390-439) in period t
(24.5 %)
 Respiratory event (ICD-9 480-496) in period t
( 4.8 %)
 Cancer event
( 5.7 %)
(ICD-9 140-209) in period t
Empirical Model
beginning
of t
beginning
of t+1
I t , Jt
Skt
At, Bt, Dt
insurance
and drug
coverage
health
shock(s)
medical care
demand
Et+1, Ft+1
health
production
Separate logit for any use and OLS log expenditures conditional on any:
 Hospital use and expenditures in period t
(20 % and $13,057)
 Physician service use and expenditures in period t
(84 % and $2,013)
 Prescription drug use and expenditures in period t
(90 % and $980)
Empirical Model
beginning
of t
beginning
of t+1
I t , Jt
Skt
At, Bt, Dt
insurance
and drug
coverage
health
shock(s)
medical care
demand
Ekt+1, Ft+1
health:
ever had chronic
condition k ,
functional status
Indicator for having ever had a
chronic condition entering period t+1:
 Heart/stroke
 Respiratory
 Cancer
 Diabetes
(47%)
(15%)
(19%)
(20%)
Ekt+1 = Ekt + Skt
Multinomial logit for functional status entering period t+1:
 Not disabled
 Moderately disabled
 Severely disabled
 Dead
(no ADL or IADLs)
(IADL or <3 ADLs)
(3 or more ADLs)
(58%)
(28%)
(10%)
( 5%)
Unobserved Heterogeneity Specification
• Permanent:
risk aversion or attitude toward medical care use
• Time-varying:
unmodeled health shocks or natural rate of deterioration
uet = ρe μ + ωe νt + εet
where uet is the unobserved component for equation e decomposed into
• permanent heterogeneity factor μ with factor loading ρe
• time-varying heterogeneity factor νt with factor loading ωe
• iid component εet
distributed N(0,σ2e) for continuous equations and
Extreme Value for dichotomous/polychotomous outcomes
Medicare Current Beneficiary Survey (MCBS) Sample
• Survey and Event files
from 1992-2001
• Overlapping samples
followed from 2 to 5 years
• Exclude individuals
ever in a nursing home
• Attrition due to death
and sample design
• Sample:
25,935 men and women;
76,321 person-year obs
Actual and Simulated Annual Mortality Rate, by Age
Actual and Simulated
Prescription Drug Expenditures, by Age and Death
Actual and Simulated
Physician Services Expenditures, by Age and Death
Actual and Simulated
Hospital Expenditures, by Age and Death
Simulations
• Start everyone off with a particular type of health insurance




–
–
–
–
–
–
Medicare only
Dual coverage by Medicaid
Private supplement without Rx coverage
Private supplement with Rx coverage
Medicare managed care (part C) without Rx coverage
Medicare managed care (part C) with Rx coverage
• Simulate behavior for 5 years
• Examine expenditures and health outcomes over 5 years
• Examine expenditures of 5-year survivors
Five-year Simulations – with unobserved heterogeneity
Five-year Simulations – without unobserved heterogeneity
Five-year Simulations – with unobserved heterogeneity
22.5
10.6
4.8
10.7
Sole Survivors vs. Marginal Survivors
Rx expenditures
triple or
quadruple
}
With increases
here, too
Increases in
expenditures
are 3.5 to 5.5
times larger
Take home message
• Methodologically, we have built and estimated a comprehensive
dynamic model of health behavior of the elderly as they age.
• Substantively, our model allows us to examine the effects of
health insurance extensions not simply on prescription drug
use but also on other types of care, as well as the impacts of
this altered demand on health outcomes and subsequent
behavior over time.
• Recently, the paper was accepted by JHR and is available from
the authors if you are interested in our other results or the
model details.
(www.unc.edu/~dgill)
Five-year Simulations – with unobserved heterogeneity
Five-year Simulations – without unobserved heterogeneity
Unobserved Heterogeneity Distribution
Actual and Simulated
Prescription Drug Use and Expenditures, by Age
Actual and Simulated
Hospital Use and Expenditures, by Age
Actual and Simulated
Physician Services Use and Expenditures, by Age
Features of our Empirical Model Suggested by Theory
• Supplemental insurance coverage is chosen at
the beginning of the period before observing
health shocks, but with knowledge of one’s
functional status, chronic conditions, and,
most importantly, unobserved individual
characteristics entering the period.
Features of our Empirical Model Suggested by Theory
Adverse selection
• Permanent and time-varying unobserved
individual characteristics affect annual
demand for all three types of medical care.
Features of our Empirical Model Suggested by Theory
Adverse selection
Jointly estimated demand
• Health transitions are a function of medical
care input allocations and health shocks
during the year. (Grossman)
Features of our Empirical Model Suggested by Theory
Adverse selection
Jointly estimated demand
Dynamic health production
• Previous medical care use may alter the utility
of medical care consumption today; hence,
lagged use affects current expenditures
directly as well as indirectly through health
transitions.
Features of our Empirical Model Suggested by Theory
Adverse selection
Jointly estimated demand
Dynamic health production
Dynamic demand for medical care