Essays on Health Care Markets
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Date
2014-08-25
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Johns Hopkins University
Abstract
Chapter 1 examines how investments in health, through spending on preventive or curative care, affect subsequent spending on medical care among the retired population. I estimate a structural model of the ``retired life cycle'' using data from the Health and Retirement Study on single retired Americans. The traditional dynamic consumption-savings model is augmented by including two medical care goods, health investment and medical consumption, allowing the former to influence health and thus future need for the latter. After estimating, I conduct policy counterfactuals to ascertain the effect of a subsidy on preventive care on health outcomes, the total demand for medical care, and public expenditures on medical care for the elderly. A subsidy targeted at healthy, lower income individuals improves longevity but does not reduce total demand for medical care over the remaining lifetime of the targeted population.
Chapter 2 uses the estimated model to investigate how medical inflation affects the consumption, medical care, and saving decisions of retired Americans. I simulate the behavior of young retirees under the average rate of medical inflation and two alternative rates. Further, the effects of medical inflation are decomposed into two parts: the intratemporal or reactionary effect, motivated by experiencing changes in the current price of care; and the intertemporal or precautionary effect, arising from foreseeing changes in future price growth. The decomposition shows that changes to consumption represent a balanced tension between opposing precautionary and reactionary effects, while the effect on medical care is driven almost entirely by the reactionary effect.
Chapter 3 presents a model to analyze consumer welfare, price, and competition in a three-way market among patients (consumers), medical providers, and insurers. Examples are used to demonstrate that consumer welfare is not necessarily increasing in the number of insurers, but instead exhibits a U-shaped pattern. While insurers compete with each other for customers, they also act as collective bargaining agents 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. Moreover, the more favorable contracts allow individuals to purchase care more often, shifting out the demand curve for care and resulting in a higher equilibrium price. I find the equilibrium of the game under all combinations of monopoly and competition between providers and insurers, and present examples to analyze the effects of insurer entry on consumer welfare and the price of care.
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Keywords
health economics, insurance, preventive care, inflation