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Health Insurance, Medical Care, and Health Outcomes: A Model of Elderly Health Dynamics

  • Zhou Yang
  • Donna B. Gilleskie
  • Edward C. Norton

Prescription drug coverage creates a change in medical care consumption, beyond standard moral hazard, arising both from the differential cost-sharing and the relative effectiveness of different types of care. We model the dynamic supplemental health insurance decisions of Medicare beneficiaries, their medical care demand, and subsequent health outcomes over time. Using parameter estimates obtained with longitudinal individual-level data, we simulate behavior under different drug coverage scenarios. Prescription drug coverage increases drug expenditures by 7 percent to 27 percent over a five-year period. While mortality rates fall slightly, the survivors have poorer health, leading to higher total medical expenditures.

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Article provided by University of Wisconsin Press in its journal Journal of Human Resources.

Volume (Year): 44 (2009)
Issue (Month): 1 ()

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Handle: RePEc:uwp:jhriss:v:44:y:2009:i1:p47-114
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  1. Donna B. Gilleskie, 1998. "A Dynamic Stochastic Model of Medical Care Use and Work Absence," Econometrica, Econometric Society, vol. 66(1), pages 1-46, January.
  2. Frank R. Lichtenberg, 2003. "The impact of new drug launches on longevity: evidence from longitudinal disease-level data from 52 countries, 1982-2001," NBER Working Papers 9754, National Bureau of Economic Research, Inc.
  3. Michelle M. Mello & Sally C. Stearns & Edward C. Norton, 2002. "Do Medicare HMOs still reduce health services use after controlling for selection bias?," Health Economics, John Wiley & Sons, Ltd., vol. 11(4), pages 323-340.
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