Packet - Economics - Johns Hopkins University

Essays on Health Care Markets
Matthew N. White
1 An Ounce of Prevention at Half Price: Evaluating a Subsidy on Health
Investments (job market paper)
Thispaperexamineshowinvestmentsinhealth, throughpreventiveorcurativecare, dynamically
affect health care purchasing behavior among the retired population. In particular,
what would be the effects of lowering the price of health investments for some individuals?
I estimate a structural model of the “retired life cycle” using data from the Health and
Retirement Study on single retired Americans. I then conduct policy counterfactuals to
ascertain the effect of a subsidy on preventive care on health outcomes, the total demand
for health care, and public expenditures on health care for the elderly. A subsidy targeted
at healthy, lower income individuals improves longevity by 0.76 months at a public cost of
$760 per capita. However, the subsidy does not reduce total demand for health care over
the remaining lifetime of the targeted population.
2 The Role of Medical Inflation in Demand for Health Care (in progress)
This paper uses the estimated model from the previous chapter to investigate the conflicting
role of medical inflation in demand for health care among the elderly. The expectation of
higher medical inflation should increase current purchases of health care as individuals seek
to stay healthy and avoid large future costs. However, as time passes and higher medical
pricesactuallyoccur, healthcarepurchasesshoulddecreasethroughapriceeffect. Iseparate
these effects by simulating an environment where medical inflation is high but individuals
do not adapt their beliefs, and an environment where individuals believe inflation will
be high but it continues normally. I further separate three ways medical inflation affects
government health care expenditures for the elderly: direct costs higher unit price, indirect
savings through lower health investment reimbursements, and indirect costs through worse
population health over time.
3 Competition Among Medical Insurers and Consumer Welfare (in progress)
Some recent proposals for health care reform rely on increased competition among insurers
(e.g. through interstate sales of policies) to decrease health care and insurance prices. This
paper presents a model to analyze price and competition in a three-way market among
patients (consumers), medical providers, and health insurers. While insurers compete with
each other for customers, they also act as a collective bargaining agent on behalf of patients
in determining the equilibrium price of health care with providers. The entry of an additional
insurer thus has contradictory effects on prices and consumer welfare, reducing prices
through competition but increasing them through reduced bargaining power of incumbent
insurers. The model is used to demonstrate that the welfare of patients is not necessarily
increasing in the number of insurers.