MARCOS POMPEU PARETO, Boston University
Email: mppareto@bu.edu

The United States has state of the art technology and world renowned expertise in medical treatment, yet in terms of healthcare it shows a dramatically poor performance in relation to the other industrialized countries. This situation is surprising, since one would expect that a free market system run almost entirely by the private sector should show a much better performance.

This issue has reached the point of being one of the most important national concerns and the subject of serious political and economic arguments - not only regarding how the system should be improved, but also whether it should remain being run by the private sector under a free market approach or whether it should be run by the government and made accessible to the entire population. The first option is supported by the arguments that public initiatives often perform poorly and that free-market competition should prevail. Contrarily, the other side claims that the system is only nominally a free market, that empirical evidence shows it's not working as it should, and that other successful healthcare systems are mostly government operated.

As is stands, the health care issue acquired national importance and is presented as a major component of both presidential candidates programs, yet each favoring a different approach to improve accessibility and lower healthcare costs. Republican Senator McCain relies on improving the system by maintaining its current private enterprise, free market characteristics, while Democratic Senator Barrack Obama favours providing universal coverage and lower costs through a higher government intervention in the system. This paper examines the approaches proposed by both candidates and analyses the potential impact their plans may have on the health care system. While the lack of more detailed implementation details makes difficult accessing the effective result of each policy, the comparative review of the alternative approaches presented in this paper will help the reader to to judge for him or herself which could be the more appropriate to upgrade the system and attain a higher performance level.

AMY FINKELSTEIN, Massachusetts Institute of Technology (MIT) - Department of Economics, National Bureau of Economic Research (NBER)
Email: afink@mit.edu
ERZO F.P. LUTTMER, Harvard University - John F. Kennedy School of Government, National Bureau of Economic Research (NBER), Institute for the Study of Labor (IZA)
Email: erzo_luttmer@ksg.harvard.edu
MATT NOTOWIDIGDO, Massachusetts Institute of Technology (MIT) - Department of Economics
Email: noto@mit.edu

We estimate how the marginal utility of consumption varies with health. To do so, we develop a simple model in which the impact of health on the marginal utility of consumption can be estimated from data on permanent income, health, and utility proxies. We estimate the model using the Health and Retirement Study's panel data on the elderly and near-elderly, and proxy for utility with measures of subjective well-being. We find robust evidence that the marginal utility of consumption declines as health deteriorates. Our central estimate is that a one-standard-deviation increase in the number of chronic diseases is associated with an 11 percent decline in the marginal utility of consumption relative to this marginal utility when the individual has no chronic diseases. The 95 percent confidence interval allows us to reject declines in marginal utility of less than 2 percent or more than 17 percent. Point estimates from a wide range of alternative specifications tend to lie within this confidence interval. We present some simple, illustrative calibration results that suggest that state dependence of the magnitude we estimate can have a substantial effect on important economic problems such as the optimal level of health insurance benefits and the optimal level of life-cycle savings.

ELLEN MEARA, Harvard Medical School, National Bureau of Economic Research (NBER)
Email: meara@hcp.med.harvard.edu
MEREDITH B. ROSENTHAL, Harvard University - Harvard School of Public Health
Email: mrosenth@hsph.harvard.edu
ANNA SINAIKO, Harvard University
Email: sinaiko@fas.harvard.edu
KATHERINE BAICKER, Harvard University - Department of Health Policy & Management, National Bureau of Economic Research (NBER)
Email: KBAICKER@DARTMOUTH.EDU

We compare and contrast the labor market and distributional impact of three common approaches to state and federal health insurance expansion: public insurance expansions, refundable tax credits for low income people, and employer and individual mandates. We draw on existing estimates from the literature and individual-level data on the non-institutionalized population aged 64 and younger from the 2005 Current Population Survey to estimate how each approach affects (1) the number of people insured; (2) private and public health spending; (3) employment and wages; and (4) the distribution of subsidies across families based on income in relation to the federal poverty level and work status of adult family members. Employer mandates expand coverage to the largest number of previously insured relative to public insurance expansions and individual tax credits, but with potentially negative labor market consequences. Medicaid expansions could achieve moderate reductions in the share of the uninsured with neutral labor market consequences, and by definition, they expand coverage to the poorest groups regardless of work status. Tax credits extend coverage to relatively few uninsured, but with neutral effects on the labor market. Both Medicaid expansions and tax credits offer moderate redistribution to previously insured individuals who are poor or near-poor. None of the three policies significantly expand insurance coverage among poor working families. Our findings suggest that no single approach helps the working poor in exactly the ways policy makers might hope. To the extent that states are motivated to help the uninsured in poor working families, health reforms must find ways to include those unlikely to take up optional policies, and states must address the challenge of the many uninsured likely to be excluded from policies based on part-time work status, firm size, or immigration status.

DAVID P. BERNSTEIN, affiliation not provided to SSRN
Email: spstat@yahoo.com

This paper evaluates the impact of three insurance policy parameters; the deductible, the coinsurance rate, and the out-of-pocket expense limit, on incentives for individuals to economize on health care spending, health plan costs, and household financial risk. High-deductible health plans are not highly effective at mitigating moral hazard problems associated with insurance because most individuals and most health care expenditure occurs from households with expenditures exceeding the plan deductible. High-deductible health plans are highly effective at reducing premiums because all individuals pay the entire deductible prior to receiving any insurance payments. Under some measures, high-deductible health plans impose less financial risk on households than high out-of-pocket or high coinsurance rate health plans. However, higher deductibles can impose substantial burdens on low-income households and reduce preventive medicine. The simulation results do not provide categorical guidance over the "best" form of cost sharing for health insurance policies.

JODI DICENZO, Behavioral Research Associates, LLC
Email: jdicenzo@behavioralresearchassociates.com
PAUL FRONSTIN, Employee Benefit Research Institute (EBRI)
Email: FRONSTIN@EBRI.ORG

This paper considers the lessons learned in the evolution of 401(k) plan design, where the objectives are a high level of participation, a high level of worker contribution, a diversified approach to investing, sufficient asset accumulation to enable retirement, and not outliving one's assets. The analysis looks specifically at lessons learned with respect to offering workers choice, financial incentives, and more information and education. This is compared with the early evolution in consumer-driven health plans (CDHPs), where the evolution is still being driven solely by the market and not by legislation or recent empirical behavioral research (the RAND empirical health behavioral research experiments of the late 1960s are still used as the touchstone today). Finally, lessons are offered about how benefit-plan design can help to optimize workers' decisions. A thoughtful analysis of this topic provides sponsors of employment-based 401(k) plans and CDHPs an opportunity to consider how these lessons may be applied to the design of these plans now.

No judgments are made about the appropriateness of CDHPs or 401(k) plans. Nor does the discussion address many of the important issues in health care, including who should make the decisions related to rationing health care - the Goliath issue that few are willing to address. This paper attempts to offer innovative thoughts, based on what is known about human behavior, for incremental improvement in benefit programs designed to balance the needs of employers and their workers, with an eye toward cost control and worker well-being.

PAUL FRONSTIN, Employee Benefit Research Institute (EBRI)
Email: FRONSTIN@EBRI.ORG

This paper analyzes the issue of immigration and health insurance coverage in the United States. It is important to examine the health insurance status of immigrants, as growth in the immigrant population can drive up the uninsured. Between 1994 and 2006, immigrants accounted for an increasing portion of the nonelderly population, rising from 8.8 percent to 12.8 percent. Over the entire 1994-2006 period, immigrants accounted for 55 percent of the increase in the uninsured. More than 12 million immigrants in the United States were uninsured in 2006, accounting for 26.6 percent of the 46.5 million uninsured individuals in the country. Given that foreign-born entrants to the United States have a high likelihood of being uninsured, it is likely that the uninsured will also grow as a proportion of the population as immigration continues to increase. Data from the Census Bureau's Current Population Survey (CPS) are used to examine health insurance and immigration. The paper first examines the status of health insurance coverage among immigrants compared with nonimmigrants. It then examines the impact of immigration over the period 1994-2006, a much longer period than was covered in previous research. The legal status of immigrants is not discussed, as relevant data are not included in the CPS; illegal immigrants probably are included in the analysis, but cannot be identified as such.

The PDF for the above title, published in the August 2008 issue of EBRI Notes, also contains the fulltext of another August 2008 EBRI Notes article abstracted on SSRN: "Saving for Health Care Expenses in Retirement: The Use of Health Savings Accounts."

NAN L. MAXWELL, affiliation not provided to SSRN

This study argues that a multidimensional health benefit offer (i.e., offers of medical, dental, sick leave, or vision benefits) and the hours or tenure restrictions placed on it are affected by the relative demand for workers in the local labor market. Using the Bay Area Longitudinal Surveys (BALS), a database of low-skilled jobs, we show that an excess labor demand for workers skills increases the firms offer of health benefits and reduces the restrictions on them, while an excess labor supply increases restrictions. These findings suggest that research assessing the correlation between wages, skills, and whether or not a firm offers health insurance might understate the plight of the low-skilled worker since health care access may also be restricted by a failure to receive an array of health benefits and by the restrictions placed on the offer. Furthermore, public policies might place the issues of uninsurance of low-wage workers within the context of a lack of marketable skills since low-skilled workers might be able to enhance their ability to secure jobs that offer an array of health benefits if they acquire skills in short supply in the local labor market.

PAUL FRONSTIN, Employee Benefit Research Institute (EBRI)
Email: FRONSTIN@EBRI.ORG

This paper examines the savings needed to cover health insurance premiums and out-of-pocket expenses for health care services in retirement and evaluates the use of health savings accounts (HSAs) to save for those expenses. Proponents of HSAs often tout them as a vehicle for funding future retiree health care costs. But, while HSAs represent an important option for consumers seeking more control over their health care spending, statutory contribution limits make it unlikely that these accounts will play more than a minor part in savings for health care costs in retirement. This research shows that while HSAs can be used to save for health care expenses in retirement, the maximum savings that can be accumulated in an HSA will be far from sufficient to fully cover the savings needed in retirement for insurance premiums and out-of-pocket expenses. One of the difficulties in using an HSA to save money for premiums and out-of-pocket expenses during retirement is that individuals also can (and may need to) use the money in the account to pay for health care services during their working years or to pay COBRA premiums and insurance premiums during periods of unemployment.

The PDF for the above title, published in the August 2008 issue of EBRI Notes, also contains the fulltext of another August 2008 EBRI Notes article abstracted on SSRN: "The Impact of Immigration on Health Insurance Coverage in the United States, 1994-2006."

ANDREW G. BIGGS, American Enterprise Institute
Email: andrew.biggs@aei.org

A new consensus on entitlement reform has developed in Washington: rising per-capita health care spending is the only real crisis besetting the government's entitlement programs, while America's aging population and Social Security play minor roles at best. Some cite this view to shift the policy emphasis from entitlement cost control to the restructuring of the U.S. health sector, including private health care. But this new consensus is flawed. Using standard accounting practices and including all major government entitlement programs, population aging will play an equal role with health care cost growth over the next seventy-five years and a significantly larger role than health spending over the next few decades. While rising health care spending is indeed a pressing issue, discounting population aging leaves out half the problem and ignores half the potential.

AMY MONAHAN, University of Missouri School of Law
Email: monahana@missouri.edu

Mandated health benefit laws figure prominently in health reform debates. These laws, which are primarily enacted by the states, require health insurers to cover specific medical treatment, services, or supplies such as mental health treatment, mammograms, or diabetes testing supplies. Critics argue that mandated health benefit laws increase health insurance costs, decrease consumer choice, and often are the product of rent-seeking, rather than sound public policy. This article seeks to further the discussion of mandated health benefit laws by first systemically identifying permissible rationales for such laws. The justifications identified include addressing (1) market failure that leads to non-availability of coverage, (2) sub-optimal utilization of a medical treatment or service, (3) undesired insurance company coverage determinations, (4) cognitive shortcuts and biases, and (5) failures in the group market. For any of these justifications to be used, however, there must also be a viable justice claim for such coverage or the coverage must have a positive cost-benefit or cost-efficiency analysis compared to non-coverage. The article argues that being precise about the justification for a mandated health benefit law allows such a law to be precisely tailored to solving the problem which justifies its existence. These tailored mandates, referred to as value-based mandates, continue to advance the important policy goals of mandates, while being significantly more efficient than non-value-based mandates. The article concludes with three case studies of existing mandated benefit laws, analyzing each under the value-based framework set forth in the first part of the article.