Research

The Welfare Effects of Accountable Care Organizations

Job Market Paper.

This paper studies the welfare effects of Accountable Care Organizations (ACOs), a policy whose goal is to reduce healthcare spending for Traditional Medicare patients. ACOs are groups of healthcare providers whose performance is evaluated by comparing a spending benchmark to the total outpatient and inpatient spending of assigned patients. Spending below the benchmark results in a financial reward given to the ACO, while spending above the benchmark results in a penalty. The welfare impact of this policy is theoretically ambiguous, as lower spending may reduce quality of care. To quantify these effects, I develop a structural model of supply and demand in the Medicare outpatient facility market where facilities compete in outpatient spending and quality. The model incorporates endogenous quality provision and spillovers onto Medicare Advantage patients, whose healthcare spending is not directly targeted by the program. I estimate the model using the universe of hospital-based claims from New York State. A counterfactual simulation that removes ACOs from the market shows that ACOs increase welfare by $1.09 billion. Spillovers onto Medicare Advantage patients account for 32% of the consumer welfare gains.

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Regulation of Contract Generosity in Selection Markets: The Case of Medicare Advantage

with Yiyi Zhou. (Under review)

In selection markets where serving different consumers incurs different costs, private firms may engage in cream-skimming by designing their contracts to attract profitable consumers and avoid unprofitable consumers, potentially harming consumer welfare. Policymakers have often tackled this issue by imposing direct restrictions on the level of generosity firms can offer. However, the impact of such regulations on welfare remains unclear, contingent on the market’s level of selection and other policies in place. Our study of the Medicare Advantage market reveals that consumers exhibit diverse healthcare needs and considerable moral hazard. The recent regulation on maximum out-of-pocket expenses, mandated by the Affordable Care Act, improves consumer welfare by 19% on average, especially benefiting those with high healthcare needs, while compressing private insurers’ markups. Government spending on the Medicare program decreases as the reduction in spending on Traditional Medicare outweighs the increased subsidies to private insurers.

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Long Term Care in the United States and Around the World: Caring for those with Severe Cognitive Impairment

with Gopi Shah Goda, Brian McGarry and Kathleen McGarry. (Draft available upon request)

The population of the United States, along with much of the world, is aging rapidly, with long-term care expenditures accounting for roughly 2% of GDP. Using the Health Retirment Survey, we use measures of respondents’ cognition and long-term care usage to quantify the long-term care cost burden of severe cognitive impairment. We show that individuals with severe cognitive impairment are significantly more likely to use informal care, formal care, and nursing home care than those without cognitive impairments, with informal care being the most common type of support. We place an economic value on each type of care, valuing informal care using the forgone wage method. Our findings indicate that the cost burden attributable to severe cognitive impairment represents nearly 50% of all long-term care costs, despite this group constituting only about 6% of the population. Finally, we compare these estimates with evidence from other countries to place the U.S. experience in an international context.