The class will meet on Tuesdays and Thursdays from 11:00 a.m. to 12:20 p.m. Classes will have largely a seminar format, with a mix of formal presentation and discussion. Students should read the recommended readings before the class in order to participate fully in the class discussion. Readings are found on the class website, except in cases where they are readily available on another website, whose URL will be given. (for readings in the J. of Health Economics, go to the web address, search for the author’s name, find the abstract, click on full text.) The readings listed as optional are intended for students with more technical background and for those who wish to pursue the topics in greater depth. These readings are not posted on the website.

Course Contact List

• To understand the relationships between incentives of the healthcare system and outcomes such as health care use and expenditures
• To understand how public insurance and tax policies and programs create these incentives.
• To understand how private and public policies can alter incentives and modify both cost and health outcomes. Issues covered include growth of HMOs and PPOs, physician payment reform, prospective payment for hospitals, and managed competition.
• To understand public policy regarding insurance for the poor (Medicaid) and the aged (Medicare).

There will be two written exercises. In the first students will write a policy memo relating to a policy issue in insurance. The second paper requires the student to choose an OECD country other than the U.S. and analyze the incentives presented by its health care system. OECD data on health and health care system use will then be used to determine in what ways the incentives are reflected in health and utilization outcomes. Students will lead class discussions of their findings. Student grades are based on these exercises and on class participation.

Reinforce microeconomic techniques and methods, learn specific facts about the organization of insurance and health care policies.

Newhouse, J., "Medical Care Costs: How Much Welfare Loss?", Journal of Economic Perspectives, (Summer 1992).

Smith, Sheila, S. Heffler, M. Freeland, et al., "The Next Decade of Health Spending: A New Outlook," Health Affairs,18:86-95 (July/August 1999).

Ginsburg, Paul B. and Jon R. Gabel, "Tracking Health Care Costs: What’s New in 1998?" Health Affairs, 17:141-146 (Sept./Oct. 1998).

Levit, Katherine, R., H.C. Lazenby, B.R. Braden,"National Health Spending Trends in 1996," Health Affairs, 17:35-51 (Jan/Feb 1998).

Pauly, M., "The Economics of Moral Hazard: Comment, American Economic Review, June 1968, Vol. 58, No. 3, pp. 531-537.

Arrow, K.J. "Uncertainty and the Welfare Economics of Medical Care," American Economic Review, December 1963, Vol. 53, pp. 941-973.

Nyman, John A., "The economics of moral hazard revisited," J. of Health Economics 18:811- 824 (December 1999). www.elsevier.com/locate/econbase

Feldstein, Martin S., "The Welfare Loss of Excess Health Insurance," Journal of Political Economy, Vol. 81, 1973: 251-279

TUESDAY, JANUARY 18: THE EFFECT OF INSURANCE ON DEMAND

Required:

Manning, W. et al., "Health Insurance and the Demand for Medical Care Evidence from a Randomized Experiment," American Economic Review, 77: 251-277 ( June 1987).

Newhouse, Joseph P. and the Insurance Experiment Group. Free for All:Lessons from the RAND Health Insurance Experiment. Harvard Univ. Press, 1993.

Keeler, E. et al., "How Free Care Reduced Hypertension in the health Insurance Experiment", Journal of the American Medical Association 254:1926-31.

Welch, Bruce, et al., "The RAND Health Insurance Study: A Summary Critique" Medical Care Vol. 25, No. 2, pp.148-156, Feb. 1987.

Leibowitz, A. et al. "Effect of Cost Sharing on the Use of Medical Services by Children", Pediatrics, May 1985, Vol. 75, pp. 942-951.

Manning, W.G., Jr., K.B. Wells, N. Duan, J.P. Newhouse and J.E. Ware, Jr., "How Cost Sharing Affects the Use of Ambulatory Mental Health Services," Journal of American Medical Association, 256(14):1930-1939, 1986.

Manning, W.G., Jr., "The Demand for Dental Care: Evidence from a Randomized Trial in Health Insurance," Journal of American Dental Association, June 1985, Vol. 110, pp. 895-902.

O’Grady, K. et al, "The Impact of Cost Sharing on Emergency Department Use," New England Journal of Medicine, August 22, 1985, Vol. 313, pp. 484-490.

Akerlof, "The Market for Lemons," Quarterly Journal of Economics, August 1970.

Enthoven, Alain C. and Richard Kronick, "Universal Health Insurance Through Incentives Reform", Journal of the American Medical Association, May 15, 1991, Vol. 265, No. 19:2532-2536.

Rothschild, M. and J. Stiglitz, "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," Quarterly Journal of Economics, Nov. 1976.

Summers, Lawrence, "Some Simple Economics of Mandated Benefits", American Economic Review, May 1989, Vol 79, No. 2: 177-183.

Pauly, M., "Taxation, Health Insurance and Market Failure," Journal of Economic Literature, June 1986, Vol. 24, pp. 629-675.

Marquis, M.S., J. Buchanan, "How Will Changes in Health Insurance Tax Policy and Employer Health Plan Contributions Affect Access to Health Care and Health Care Costs?" JAMA, MARCH 23/30, 1994-VOL 271, No. 12.

Rothschild, M. and J. Stiglitz, "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," Quarterly Journal of Economics, Nov. 1976.

Chernew, Michael, Kevin Frick, Catherine G. McLaughlin. "The Demand for Health Insurance Coverage by Low Inocome Workers: Can Reduced Premiums Achieve Full Coverage?" Health Services Research, 32:4(October, 1997): 453-470.

Long, Stephen H. and M. Susan Marquis, "TRENDS: Stability and Variation in Employment-Based Health Insurance Coverage, 1993-1997," Health Affairs 18:133-139 (November/December 1999).

Blumberg, Linda J. "PERSPECTIVE: Who Pays for Employer-Sponsored Health Insurance?" Health Affairs 18:58-61 (November/December 1999).

Jensen, Gail A. and Michael Morrisey, "Small Group Reform and Insurance Provision by Small Firms, 1989-1995", The Henry J. Kaiser Family Foundation, Fall 1997.

Jones, Stanley B., "Employer-Based Private Health Insurance Needs Structural Reform," Inquiry (Summer 1992), 29:120-127.

Cutler, D, J Gruber, "Does Public Insurance Crowd Out Private Insurance?" Quarterly Journal of Economics, 1996. 61:391-430.

Mann, Joyce M., Glenn A. Melnick, Anil Bamezai, Jack Zwanziger, "A Profile of Uncompensated Hospital Care, 1983-1995," Health Affairs 16:223-232 (July/August 1997).

Kaiser Commissiion on Medicaid and the Uninsured. The Medicaid Program at a Glance. September 1998.

Marquis, S. and E. Harrison, "Health Status and Health Care Use of Uninsured Workers," in Health Benefits and The Workforce, 1992.

Markowitz, M. M. Gold and T. Rice, "Determinants of Health Status Among Young Adults", Medical Care, Vol. 29, No. 1, (Jan. 1991), pp. 6-19.

Wallace, S. "Welfare Reform Could Add 25,000 Uninsured LA County Residents per Year", UCLA Center for Health Policy Research Policy Brief, August 1997.

Atkinson, G, WD Helms, J Needleman, "State Trends in Hospital Uncompensated Care," Health Affairs, July/August 1997, 16(4):233-241.

Mann, JM, GA Melnick, A Bamezai, J Zwanziger, "A Profile of Uncompensated Hospital Care, 1983-1995", Health Affairs, July/August 1997, 16(4):223-232.

In December 1999, the Xerox Corporation announced that, in lieu of providing health insurance, it wants to provide a fixed sum of $5000 to each employee to allow them to purchase individual health insurance. We will debate in class the advisability from a public policy perspective of this proposal. Students will be assigned to support the "pro" or "con" position, and will prepare a 3-5 page paper making the arguments.

Jensen, Gail A., Michael A. Morrisey, Shannon Gaffney, Derek K. Liston, "The New Dominance of Managed Care: Insurance Trends in the 1990s," Health Affairs, 16(1), Jan/Feb 1997: 125-136.

Pauly, M.V. and S.d. Ramsey, "Would you like suspenders to go with that belt? An analysis of optimal combinations of cost sharing and managed care". J. Health Economics 18:443-458 (August 1999). www.elsevier.com/locate/econbase

Hillman, Alan L., W. Pete Welch, Mark V. Pauly, "Contractual Arrangements Between HMOs and Primary Care Physicians: Three Tiered HMOs and Risk Pools", Medical Care, 30(2), February 1992:136-148.

Auger, R. and V. Goldberg, "Prepaid Health Plans and Moral Hazard," Public Policy", Vol. 22, 1974, pp. 353-393.

Iglehart, John K., "The American Health Care System," The New England Journal of Medicine, 327: 742-747 (Sept. 3, 1992).

Pauly, M. A. Hillman and J. Kerstein, "Managing Physician Incentives in Managed Care", Medical Care, Vol. 28, No. 11, (Nov. 1990) pp. 1013-1023.

Hoy, Elizabeth , Richard Curtis, and Thomas Rice, "Change and Growth in Managed Care," Health Affairs, Winter 1991, pp. 18-36.

Feldstein, P., "Physician Reimbursement by Salary or FFS -- a Randomized Trial," Pediatrics, September 1987.

Meier G.B. and J. Tillotson, "Physician Reimbursement and Hospital Use in HMO’s," Interstudy, Excelsior, Minnesota.

Wolinsky, F.D. and B.A. Corry, "Organizational Structure and Medical Practice in HMO’s," Profile of Medical Practice, 1981, pp. 67-82.

Robert H. Miller and Luft, H.S., "Managed Care Plan Performance Since 1980: A Literature Analysis", Journal of the American Medical Association, 271(19), May 18, 1994: 1512-1519.

Manning, W., A. Leibowitz, G. Goldberg, W. Rogers, and J. Newhouse, "A Controlled Trial and the Effect of a Prepaid Group Practice on the Use of Services," New England Journal of Medicine, Vol. 310, June 7, 1984, pp. 1505-1510.

Mark, Tami and Curt Mueller, "Access to Care in HMOs and Traditional Insurance Plans," Health Affairs, 15:81-87 (Winter 1996).

Siu, A., A. Leibowitz, et.al., "Use of the Hospital in a Randomized Trial of Prepaid Care," in Journal of American Medical Association, Vol. 259, No. 9, 1988, pp. 1343-1346.

Luft, H.S., "Why Do HMO’s Seem to Provide More Health Maintenance Services?", Milbank Memorial Fund Quarterly, Spring 1978, pp. 140-168.

Miller, Robert H. and Harold S. Luft, "Does Managed Care Lead to Better Or Worse Quality of Care?", Health Affairs, 16(5), September/October 1997: 7-25.

In addition, students will each read and report on one additional article, which will be distributed in class.

David Carlisle, "HMO vs. FFS Care of Older Persons with Acute Myocardial Infarction", AJPH, Vol.82:12, pp. 1626-1630, December 1992.

Bernstein, A., G.B. Thompson and L. Harlan, "Differences in Rates of Cancer Screening by Usual Sources of Medical Care," Medical Care, Vol. 29, pp. "194-209.

Retchin, Sheldon M, Dodlores Gurnick Clement, et. al., "How the elderly Fare in HMOs: Outcomes from the Medicare Competition Demonstration," Health Services Research 27:5 (December 1992), 651-669.

Pearson, Steven D. Thomas H. Lee, et al., "The Impact of Membership in a Health Maintenance Organization on Hospital Admission Rates for Acute Chest Pain," Health Services Research 29:1 (Arpril 1994), 59-74.

Tussing,A. Dale and Martha A. Wojtowycz, "Health maintenace Organizations, Independent Practice Associations and Cesarean Section Rates," Health Services Research 29:1 (Arpril 1994), 75-93.

Francis, Polissar and Lorenz, "Care of Patients with Colorectal Cancer," Medical Care, May 1984, Vol. 22, No.5.

Leibowitz, Arleen, Joan L. Buchanan, and Joyce Mann. "A randomized trial to evaluate the effectiveness of a Medicaid HMO" Journal of Health Economics, Vol 11, 1992, 235-257.

Morgan, Robert O., Beth A. Virnig, Carolee A. DeVito, Nancy A. Persily, "The Medicare-HMO Revolving Door—The Healthy Go in and the Sick go Out," The New England Journal of Medicine, 337(3), July 17, 1997:169-175.

Davies, A., Ware, Brook, Peterson and Newhouse, "Consumer Acceptance of Prepaid and Fee-for-service Medical Care: Results from a Randomized Controlled Trial," Health Services Research, Vol. 2, No. 3, 1986, pp.

429-452.

Porell, Frank W. and Christopher Tompkins, "Medicare Risk Contracting: Identifying Factors Associated with Market Exit," Inquiry, 30 (Summer 1993), 157-169.

Eggers and Prihoda, "Pre-enrollment Reimbursement Patterns of Medicare Beneficiaries Enrolled in "At-risk" HMOs," HCFA Review, 1982.

Luft, H., "The Self Selection Issue," Health Maintenance Organizations: Dimensions of Performance, New York, Wiley, 1981, pp. 40-57.

Buchanan, J. and S. Cretin, "Risk Selection of Families Electing HMO Membership," Medical Care, Vol., 24, pp. 39-51, January 1986.

Hickson, Gerald B., W. A. Altemeier, James M. Perrin, "Physician Reimbursement by Salary or Fee for Service", Pediatrics, Sept, 1987, 80, 3:344-350.

Kerr, Eve, B. Mittman, R.D. Hays, A.L. Siu, B. Leake, R.B. Brook, "Managed Care and Capitation in California: How Do Physicians at Financial Risk Control Their Own Utilization?" Annals of Internal Medicine, 123, 7, Oct. 1995:500-504.

Simon, Carol J. and Patricia H. Born, "Physician Earnings In A Changing Managed Care Environment," Health Affairs, Fall 1996, 15,3:124-133.

Escarce, Jose, "Effects of Lower Surgical Fees on the Use of Physicians Services Under Medicare," JAMA, 269(19):2513-2518, May 19, 1993.

Ginsburg, Paul B., and Hogan, Christopher, "Physician Response to Fee Changes: A Contrary View", JAMA, 269(19):2550-2552, May 19, 1993.

McGuire, Thomas G., and Mark V. Pauly, "Physician Response to Fee Changes with Multiple Payers," Journal of Health Economics, 10:385-410, 1991. www.elsevier.com/locate/econbase

Hsiao, William, et.al., "Estimating Physician’s Work for a Resource-Based Relative Value Scale," New England Journal of Medicine, Vol. 319, No. 13, 1988, pp. 835-841.

Hammons, G., R. Brook and J. Newhouse, "Selected Alternatives for Paying Physicians Under the Medicare Program: Effects on the Quality of Care," RAND, R-3394-OTA, 1986.

Hemenway, D., et.al., "Physicians’ Responses to Financial Incentives," New England Journal of Medicine, Vol. 322, No. 15, 1990, pp. 1059-1063.

Rice, T. and J. Bernstein, "Volume Performance Standards: Can They Control Growth in Medical Services?" The Milbank Quarterly, Vol. 68, No. 3, 1990, pp. 295-319.

Sparer, Michael S. and Lawrence D. Brown, "Nothing Exceeds like Success: Managed Care Comes to Medicaid in New York City", Milbank Quarterly, 77:205-223 (1999).

Keeler, Emmett B., Glenn Melnick, Jack Zwanziger, "The changing effects of competition on non-profit and for-profit hospital pricing behavior," J. Health Economics 18:69-86 (1999). www.elsevier.com/locate/econbase

Lynk, William J. and Lynette R. Neumann, "Price and Profit," J. Health Economics 18:99-116 (1999). www.elsevier.com/locate/econbase

Dranove, David, Amy Durkac, and Mark Shanley, "Are Multihospital Systems More Efficient?" Health Affairs, 15,1 (Spring 1996), 100-104.

Zwanziger, J., Glenn Melnick, J. Mann, L. Simonson, " How Hospitals Practice Cost Containment with Selective Contracting and the Medicare Prospective Payment System," Medical Care, 32:1153-1162.

Trauner, J.B. and J. S. Chesnutt, "Medical Groups in California: Managing Care Under Capitation," Health Affairs, (Spring 1996)15, 1:159-170.

Feldman, Roger, Bryan Dowd, and Gregory Gifford, "The Effect of HMOs on Premiums in Employment-Based Health Plans," Health Services Research, 27:"6 (February 1993), 779-811.

Hadley, Jack, Stephen Zuckerman, Lisa I. Iezzoni, "Financial Pressure and Competitioin: Changes in Hospital Efficiency and Cost-shifting Behavior," Medical Care, 34(3):205-219.

Robinson, James C. and Lawrence P. Casalino. "Vertical Integration and Organizational Networks in Health Care," Health Affairs, 15,1 (Spring 1996), 7-22.

Melnick, Glenn, J. Zwanziger, A. Bamezai and R. Pattison, "The Effects of Market Structure and Bargaining Position on Hospital Prices," Journal of Health Economics, 11 (1992) 217-233. www.elsevier.com/locate/econbase

Robinson J. and H. Luft, "The Impact of Hospital Market Structure on Patient Volume, Average Length of Stay, and the Cost of Care," Journal of Health Economics, Vol. 4, pp. 33-356, 1985. www.elsevier.com/locate/econbase

Dranove, David, Mark Shanley and William White, "Price and Concentration in Hospital Markets: The Switch From Patient-Driven to Payer-Driven Competition," The Journal of Law & Economics, Vol. 36, April 1993.

Pauly, M. "A Primer on Competition in Medical Markets" Health Care in America, pp. 27-71.

Frank, Richard G. and Thomas G. McGuire, "Economics and Mental Health," NBER Working Paper # 7052 http://www.nber.org/papers/w7052.

U.S. Surgeon General "Chapter 6:Organizing and Financing Mental Health Services" Mental Health: A Report of the Surgeon General, December1999. http://www.surgeongeneral.gov/library/reports.htm

Frank, R.G., T.G. McGuire, J.P. Newhouse,"Risk Contracts in Managed Mental Health Care." Health Affairs, 14:50-64, 1995.

Frank, Richard G., Haiden A. Huskamp, Thomas G. McGuire, Joseph P. Newhouse, "Some Economics of Mental Health ‘Carve-Outs’", Archives of General Psychiatry, 53:933-937, Oct. 1996.

Ma, Ching-to Albert, Thomas G. McGuire, "Costs and Incentives in A Behavioral Health Carve-Out," Health Affairs, 17(2), March/April 1998:53-71,

Students will examine the health care finance system of a country other than the U.S., identify the incentives provided by the system and analyze the results of those incentives on costs and on health. The following papers provide useful background:

Wagstaff, A, et al. "Equity in the finance of health care: some further international comparisons," J. Health Economics 18:263-290 (1999). http:/www.elsevier.com/locate/econbase