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The Efficiency of Medicare

In: Analyses in the Economics of Aging

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  • Jonathan S. Skinner
  • Elliott S. Fisher
  • John Wennberg

Abstract

Technological advances in health care have been shown to yield large average health benefits for the U.S. elderly population. However, less is known about the marginal or incremental benefits of health care spending. We use geographical variations in health care spending to measure the marginal value of greater health care intensity among the elderly Medicare population. To correct for the reverse causation problem -- that sicker areas tend to require more health care -- we use regional averages of physician visits in the last six months of life as a natural randomization for health care intensity. Using linear and semiparametric instrumental variables, we find that a large component of Medicare expenditures -- $26 billion in 1996 dollars, or nearly 20 percent of total Medicare expenditures -- appears to provide no benefit in terms of survival, nor is it likely that this extra spending improves the quality of life. While secular trends in health care technology have delivered large health benefits, variation in health care intensity at a point in time have not.

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This chapter was published in:

  • David A. Wise, 2005. "Analyses in the Economics of Aging," NBER Books, National Bureau of Economic Research, Inc, number wise05-1, July.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 10359.

    Handle: RePEc:nbr:nberch:10359

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    1. Joseph G. Altonji & Todd E. Elder & Christopher R. Taber, 2005. "Selection on Observed and Unobserved Variables: Assessing the Effectiveness of Catholic Schools," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 151-184, February.
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    3. Cutler, David, 2000. "Walking the Tightrope on Medicare Reform," Scholarly Articles 2640587, Harvard University Department of Economics.
    4. David M. Cutler, 2000. "Walking the Tightrope on Medicare Reform," Journal of Economic Perspectives, American Economic Association, vol. 14(2), pages 45-56, Spring.
    5. Angrist, Joshua D, 1990. "Lifetime Earnings and the Vietnam Era Draft Lottery: Evidence from Social Security Administrative Records," American Economic Review, American Economic Association, vol. 80(3), pages 313-36, June.
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    7. David M. Cutler & Mark McClellan & Joseph P. Newhouse & Dahlia Remler, 1999. "Pricing Heart Attack Treatments," NBER Working Papers 7089, National Bureau of Economic Research, Inc.
      • David M. Cutler & Mark B. McClellan & Joseph P. Newhouse & Dahlia K. Remler, 2001. "Pricing Heart Attack Treatments," NBER Chapters, in: Medical Care Output and Productivity, pages 305-362 National Bureau of Economic Research, Inc.
    8. Angus Deaton & Christina Paxson, 1999. "Mortality, Education, Income, and Inequality among American Cohorts," NBER Working Papers 7140, National Bureau of Economic Research, Inc.
    9. David M. Cutler, 1993. "The Incidence of Adverse Medical Outcomes Under Prospective Payments," NBER Working Papers 4300, National Bureau of Economic Research, Inc.
    10. Currie, Janet & Gruber, Jonathan, 1996. "Saving Babies: The Efficacy and Cost of Recent Changes in the Medicaid Eligibility of Pregnant Women," Journal of Political Economy, University of Chicago Press, vol. 104(6), pages 1263-96, December.
    11. David M. Cutler & Ellen Meara, 2000. "The Technology of Birth: Is It Worth It?," NBER Chapters, in: Frontiers in Health Policy Research, Volume 3, pages 33-68 National Bureau of Economic Research, Inc.
    12. Jonathan Skinner & John E. Wennberg, 2000. "Regional Inequality in Medicare Spending: The Key to Medicare Reform?," NBER Chapters, in: Frontiers in Health Policy Research, Volume 3, pages 69-90 National Bureau of Economic Research, Inc.
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    Cited by:
    1. James B. Rebitzer & Mari Rege & Christopher Shepard, 2008. "Influence, Information Overload, and Information Technology in Health Care," NBER Working Papers 14159, National Bureau of Economic Research, Inc.
    2. Alan M. Garber & Jonathan Skinner, 2008. "Is American Health Care Uniquely Inefficient?," NBER Working Papers 14257, National Bureau of Economic Research, Inc.
    3. Jonathan C. Javitt & James B. Rebitzer & Lonny Reisman, 2007. "Information Technology and Medical Missteps: Evidence from a Randomized Trial," NBER Working Papers 13493, National Bureau of Economic Research, Inc.
    4. Meer, Jonathan & Rosen, Harvey S., 2004. "Insurance and the utilization of medical services," Social Science & Medicine, Elsevier, vol. 58(9), pages 1623-1632, May.
    5. Victor R. Fuchs & Mark B. McClellan & Jonathan S. Skinner, 2004. "Area Differences in Utilization of Medical Care and Mortality among U.S. Elderly," NBER Chapters, in: Perspectives on the Economics of Aging, pages 367-414 National Bureau of Economic Research, Inc.
    6. Robert E Hall & Charles I Jones, 2007. "The Value of Life and the Rise in Health Spending," The Quarterly Journal of Economics, MIT Press, vol. 122(1), pages 39-72, 02.
    7. Craig William Perry & Harvey S. Rosen, 2001. "Insurance and the Utilization of Medical Services Among the Self-Employed," NBER Working Papers 8490, National Bureau of Economic Research, Inc.
    8. Katherine Baicker & Amitabh Chandra, 2004. "The Productivity of Physician Specialization: Evidence from the Medicare Program," American Economic Review, American Economic Association, vol. 94(2), pages 357-361, May.
    9. Xavier Pautrel, 2009. "Health-enhancing activities and the environment:How competition for resources make the environmental policy beneficial," Working Papers hal-00423323, HAL.
    10. Khwaja, Ahmed, 2010. "Estimating willingness to pay for medicare using a dynamic life-cycle model of demand for health insurance," Journal of Econometrics, Elsevier, vol. 156(1), pages 130-147, May.
    11. Brian S. Armour & M. Melinda Pitts, 2007. "Does disability explain state-level differences in the quality of Medicare beneficiary hospital inpatient care?," Working Paper 2007-18, Federal Reserve Bank of Atlanta.
    12. Maura Francese & Marzia Romanelli, 2014. "Is there room for containing healthcare costs? An analysis of regional spending differentials in Italy," The European Journal of Health Economics, Springer, vol. 15(2), pages 117-132, March.

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