Amy Finkelstein Wins the John Bates Clark Award
This is from the American Economics Association:
[H]er 2007 paper in the Quarterly Journal of Economics, “The Aggregate Effects of Health Insurance: Evidence from the Introduction of Medicare.” The paper examines the impact of the most dramatic change in health insurance coverage in American history, the introduction of Medicare in 1965, on the consumption of health care. The analysis focuses on the hospital sector, which was the largest component of health spending at the time of Medicare’s introduction and of the subsequent growth in health spending. The empirical strategy exploits the fact that prior to the introduction of Medicare, the incidence of hospitalization insurance policies varied widely across regions. This implies that the fraction of elderly households who experienced substantial changes in their ability to pay for hospital- based care varied across regions. By exploiting these inter-regional differences along with an extremely rich database on hospital care during the years surrounding the enactment of Medicare, Amy provides clear evidence that in places where Medicare had an especially large effect in expanding insurance coverage, there was an especially large increase in health expenditures. The paper estimates that the impact of Medicare on hospital spending is over six times larger than what the evidence from individual-level changes in health insurance would have predicted. This disproportionately larger effect is attributed to the fact that market-wide changes in health insurance may have changed medical practices. Consistent with this explanation, the paper provides suggestive evidence that the introduction of Medicare was associated with substantial new hospital entry, increased adoption of cardiac technologies and increased spending on non-Medicare patients. Based on these estimates and some back-of-the-envelope calculations, Amy suggests that about half of the increase in real per capita health spending between 1950 and 1990 can be attributed to the spread of health insurance.
Missing from the description: Amy’s finding that the expansion of Medicare had no effect on the health of the elderly, at least as measured by mortality.
John, thanks for filling in the gap.
The AMA favored Medicare, which rapidly expanded the number of insured — and increased health care spending. So it is no wonder doctors’ practice patterns changed. It would be interesting to see a correlation between doctors’ pay and Medicare and general heath expenditures. In the early years of Medicare, I suspect, doctors’ real income went up markedly due to the opportunity to sell more services.
Half of the increase? – that doesn’t surprise me.
Amy Finkelstein is definitely one of the top young economists in academia. I’m glad to see that she won rather than someone with a political agenda. In one study, Finkelstein found that people are willing to pay something like 30% higher tolls when toll roads are cashless compared to when people have to stop and shell out cash. It’s not the convenience people are willing to pay for. It’s the out-of-sight; out-of-mind concept when they are removed from the cost of the service they are using. That is not unlike health care. In health care, people care less about price because they are too far removed from their expenditures.