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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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Suggested Citation

  • Jonathan S. Skinner & Elliott S. Fisher & John Wennberg, 2005. "The Efficiency of Medicare," NBER Chapters,in: Analyses in the Economics of Aging, pages 129-160 National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberch:10359
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    Cited by:

    1. Weeks, William B. & Jardin, Marie & Paraponaris, Alain, 2015. "Characteristics and patterns of elective admissions to for-profit and not-for-profit hospitals in France in 2009 and 2010," Social Science & Medicine, Elsevier, vol. 133(C), pages 53-58.
    2. 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.
    3. 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.
    4. 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.
    5. Robert E. Hall & Charles I. Jones, 2007. "The Value of Life and the Rise in Health Spending," The Quarterly Journal of Economics, Oxford University Press, vol. 122(1), pages 39-72.
    6. Meer, Jonathan & Rosen, Harvey S., 2004. "Insurance and the utilization of medical services," Social Science & Medicine, Elsevier, vol. 58(9), pages 1623-1632, May.
    7. Javitt, Jonathan C. & Rebitzer, James B. & Reisman, Lonny, 2008. "Information technology and medical missteps: Evidence from a randomized trial," Journal of Health Economics, Elsevier, vol. 27(3), pages 585-602, May.
    8. 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.
    9. 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.
    10. Peabody, John W. & Nordyke, Robert J. & Tozija, Fimka & Luck, Jeff & Muñoz, Jorge A. & Sunderland, Anne & DeSalvo, Karen & Ponce, Ninez & McCulloch, Charles, 2006. "Quality of care and its impact on population health: A cross-sectional study from Macedonia," Social Science & Medicine, Elsevier, vol. 62(9), pages 2216-2224, May.
    11. Xavier Pautrel, 2009. "Health-enhancing activities and the environment:How competition for resources make the environmental policy beneficial," Working Papers hal-00423323, HAL.
    12. Brian S. Armour & M. Melinda Pitts, 2007. "Does disability explain state-level differences in the quality of Medicare beneficiary hospital inpatient care?," FRB Atlanta Working Paper 2007-18, Federal Reserve Bank of Atlanta.
    13. 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.
    14. 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;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 15(2), pages 117-132, March.

    More about this item

    JEL classification:

    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • I1 - Health, Education, and Welfare - - Health

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