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

Health Insurance, 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
Journal of Human Resources 44(1): 48-108, 2009
November 16, 2010
UNC School of Nursing
As individuals, what do we know?
• The U.S. spends a lot on medical care.
• Most elderly are covered by Medicare (parts A and B).
• Elderly may choose Medicare’s managed care plan (part C).
• Many of the elderly have supplemental health insurance.
• Medicare, generally, did not cover prescription drugs.
• The Medicare Prescription Drug Improvement and
Modernization Act has made drug coverage an option for the
elderly (part D).
As economists, what do we know?
• Third-party coverage of medical care expenses leads to
increased demand for covered services.
• Prescription drug coverage leads to greater consumption of
prescription drugs.
• Increased prescription drug use reduces mortality (and
morbidity).
• Differences in the cost-sharing characteristics of coverage for
different types of medical care can affect consumption
behavior.
• Differences in the effectiveness of different types of medical
care can affect consumption behavior.
Can we predict
the long-run impact of Rx coverage?
Yes, but what we don’t want to do is:
• ignore the endogeneity of insurance selection
• consider the effect of drug coverage on drug expenditures only
• measure the effect of prescription drug use on mortality only
• fail to model changes in health over time
• evaluate outcomes in a static setting
• ignore unobserved individual heterogeneity likely to influence
behavior in several dimensions
The Big Picture
Supplemental
Insurance,
Rx Coverage
H
e
a
l
t
h
S
h
o
c
k
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%)
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
It= I(Et, Ft, At-1, Bt-1, Dt-1, Xt, ZIt, ZHt, ZMt, t , uit)
Jt= J(Et, Ft, At-1, Bt-1, Dt-1, Xt, ZIt, ZHt, ZMt, t , uJt)
Skt= S(Et, Ft, Xt, ZHt, ukt), k = 1, 2, 3
At= A(ItJt, St, Et, Ft, At-1, Bt-1, Dt-1, Xt, ZMt, t , uAt)
Bt= B(ItJt, St, Et, Ft, At-1, Bt-1, Dt-1, Xt, ZMt, t , uBt)
Dt= D(ItJt, St, Et, Ft, At-1, Bt-1, Dt-1, Xt, ZMt, t , uDt)
Ft+1= F(Et, Ft , St, At, Bt, Dt, Xt, uft)
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
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
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…so far
• 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 (Rx coverage) 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.
• Increases in Rx coverage increase short-run demand for drugs, as
well as other types of care. Mortality rates decline, but functional
status of survivors is worse. Hence, total expenditures increase
over a 5-year period.
Why might nursing care matter?
Or better, where would it enter the model?
• Clearly it might affect health outcomes,
conditional on endogenous inputs
– affects marginal product of health input
– but only the hospital care input
• Might it affect demand for care?
– consumers care about price (budget constraint)
– but preferences might also depend on quality
Identification in the set of dynamic equations
• Exogeneity of some explanatory variables conditional
on the unobserved heterogeneity
– theoretically-relevant exogenous supply-side variables
– lagged values of exogenous (both ind and ss)
– lagged values of endogenous variables
• Exogenous variables, in the reduced-form initial condition
equations, that are excluded from the dynamic structural
equations
• Specification and covariance structure of the permanent and
time-varying unobserved individual heterogeneity
• Functional form of the equations
What next?
• We lack good data at the individual level
– on outcomes
– on inputs
– at reasonable intervals
– for a large sample of representative people
• We lack a theory that considers the effects of
both price and quality on demand for medical
care and health production.
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