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HMOs and Fee-For-Service Health Care Expenditures: Evidence from Medicare

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  • Laurence C. Baker
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    Abstract

    Increasing levels of HMO activity may influence health expenditures in other sectors of the market. Medicare provides FFS coverage to the majority of its beneficiaries and may thus provide a way of examining these so-called spillover effects. This paper examines 1986-1990 Medicare FFS expenditures at the county- and MSA- levels, coupled with county- and MSA-level measures of HMO market share. Fixed-effects and IV estimates of the relationship between market share and expenditures are presented. All of the models imply that FFS expenditures are concave in market share and that expenditures are decreasing in market share for market shares above about 18%. Many of the estimates suggest that expenditures become decreasing in market share at much lower levels (between 0% and 10%). Fixed-effects estimates imply that increases in market share from 20 to 30 percent would be associated with expenditure reductions of 3.4% -6.6% in Part A expenditures and 2.5% - 5.6% in Part B expenditures. IV estimates imply larger responses. The results are consistent with the hypothesis that managed care can affect non-managed-care expenditures.

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    File URL: http://www.nber.org/papers/w5360.pdf
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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5360.

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    Date of creation: Nov 1995
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    Publication status: published as Journal of Health Economics, Vol. 16, no. 4 (August 1997): 453-481.
    Handle: RePEc:nbr:nberwo:5360

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    1. Gary Solon, 1984. "Estimating Autocorrelations in Fixed-Effects Models," NBER Technical Working Papers 0032, National Bureau of Economic Research, Inc.
    2. Hausman, Jerry A. & Newey, Whitney K. & Ichimura, Hidehiko & Powell, James L., 1991. "Identification and estimation of polynomial errors-in-variables models," Journal of Econometrics, Elsevier, vol. 50(3), pages 273-295, December.
    3. Cromwell, Jerry & Mitchell, Janet B., 1986. "Physician-induced demand for surgery," Journal of Health Economics, Elsevier, vol. 5(4), pages 293-313, December.
    4. Hausman, Jerry A, 1978. "Specification Tests in Econometrics," Econometrica, Econometric Society, vol. 46(6), pages 1251-71, November.
    5. Charles E. Phelps, 1992. "Diffusion of Information in Medical Care," Journal of Economic Perspectives, American Economic Association, vol. 6(3), pages 23-42, Summer.
    6. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November.
    7. Noether, Monica, 1988. "Competition among hospitals," Journal of Health Economics, Elsevier, vol. 7(3), pages 259-284, September.
    8. K. Newey, Whitney, 1985. "Generalized method of moments specification testing," Journal of Econometrics, Elsevier, vol. 29(3), pages 229-256, September.
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    Cited by:
    1. Currie, Janet & Fahr, John, 2004. "Hospitals, managed care, and the charity caseload in California," Journal of Health Economics, Elsevier, vol. 23(3), pages 421-442, May.
    2. Janet Currie & John Fahr, 2002. "Medicaid Managed Care: Effects on Children's Medicaid Coverage and Utilization," NBER Working Papers 8812, National Bureau of Economic Research, Inc.
    3. Laurence C. Baker & Kenneth S. Corts, 1995. "The Effects of HMOs on Conventional Insurance Premiums: Theory and Evidence," NBER Working Papers 5356, National Bureau of Economic Research, Inc.

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