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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, May.
    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. Angus S. Deaton & Christina Paxson, 2001. "Mortality, Education, Income, and Inequality among American Cohorts," NBER Chapters, in: Themes in the Economics of Aging, pages 129-170 National Bureau of Economic Research, Inc.
    2. Victor R. Fuchs & Mark McClellan & Jonathan Skinner, 2001. "Area Differences in Utilization of Medical Care and Mortality Among U.S. Elderly," NBER Working Papers 8628, National Bureau of Economic Research, Inc.
    3. Joseph G. Altonji & Todd E. Elder & Christopher R. Taber, 2000. "Selection on Observed and Unobserved Variables: Assessing the Effectiveness of Catholic Schools," NBER Working Papers 7831, National Bureau of Economic Research, Inc.
    4. 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.
    5. Cutler, D.M., 1992. "The Incidence of Adverse Medical Outcome Under Prospective Payment," Harvard Institute of Economic Research Working Papers 1603, Harvard - Institute of Economic Research.
    6. David M. Cutler, 2000. "Walking the Tightrope on Medicare Reform," Journal of Economic Perspectives, American Economic Association, vol. 14(2), pages 45-56, Spring.
    7. Whitney K. Newey & James L. Powell & Francis Vella, 1999. "Nonparametric Estimation of Triangular Simultaneous Equations Models," Econometrica, Econometric Society, vol. 67(3), pages 565-604, May.
    8. Cutler, David, 2000. "Walking the Tightrope on Medicare Reform," Scholarly Articles 2640587, Harvard University Department of Economics.
    9. 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.
    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. 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.
    12. David M. Cutler & Ellen Meara, 1999. "The Technology of Birth: Is it Worth it?," NBER Working Papers 7390, National Bureau of Economic Research, Inc.
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    Cited by:
    1. Robert E. Hall & Charles I. Jones, 2004. "The Value of Life and the Rise in Health Spending," NBER Working Papers 10737, National Bureau of Economic Research, Inc.
    2. Xavier Pautrel, 2009. "Health-enhancing Activities and the Environment: How Competition for Resources Makes the Environmental Policy Beneficial," Working Papers 2009.111, Fondazione Eni Enrico Mattei.
    3. Meer, Jonathan & Rosen, Harvey S., 2004. "Insurance and the utilization of medical services," Social Science & Medicine, Elsevier, vol. 58(9), pages 1623-1632, May.
    4. 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.
    5. 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.
    6. Alan M. Garber & Jonathan Skinner, 2008. "Is American Health Care Uniquely Inefficient?," Journal of Economic Perspectives, American Economic Association, vol. 22(4), pages 27-50, Fall.
    7. 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.
    8. 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.
    9. Victor R. Fuchs & Mark McClellan & Jonathan Skinner, 2001. "Area Differences in Utilization of Medical Care and Mortality Among U.S. Elderly," NBER Working Papers 8628, National Bureau of Economic Research, Inc.
    10. Craig William Perry & Harvey Rosen, 2001. "Insurance and the Utilization of Medical Services Among the Self-Employed," CESifo Working Paper Series 580, CESifo Group Munich.
    11. 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.
    12. 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.

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