Coinsurance Rate Research Articles

Affordable False Teeth: The Effects of Patient Cost Sharing on Denture Utilization and Subjective Chewing Ability

Abstract We evaluate the impact of patient cost sharing on the use of dentures and subjective chewing ability exploiting a sharp reduction in the coinsurance rate, the percentage of costs born by the user, from 30 % to 10 % at the age of 70 with a regression discontinuity design. Using data from the Japanese Study of Aging and Retirement (JSTAR), we find that the utilization rate of dentures increases from approximately 50 % to 63 % around the threshold, implying that the extensive margin elasticity of denture usage with respect to the coinsurance rate is about –0.41. In addition, we find this jump is almost entirely due to the change in the rate among women. On the other hand, we do not find a significant improvement in self-reported chewing ability, although chewing ability may not be the only social benefit from dentures. Our empirical findings are also confirmed by complementary analysis with randomization tests.

The design of insurance coverage for medical products under imperfect competition

This paper studies the design of health insurance with ex post moral hazard, when there is imperfect competition in the market for the medical product. Various scenarios, such as monopoly pricing or horizontal differentiation are considered. Insurers (or their regulator) can commit to a reimbursement policy which specifies two types of copayments: an ad valoremcoinsurance rate and a specific (per unit) copayment. By combining both copayment rates in an adequate way the insurer can effectively control the producer price, which is then set so that the producer's revenue just covers fixed costs. Consequently, a suitable regulation of the copayment instruments leads to the same reimbursement rule as under perfect competition for medical products. Additional rationing of coverage because of imperfect competition is notnecessary. The optimal policy involves the smallest possible copayment combined with the largest possible coinsurance rate such that the participation constraint of health providers is binding.

Possibilistic risk aversion in group decisions: theory with application in the insurance of giga-investments valued through the fuzzy pay-off method

Giga-investments are large industrial investments that have long construction times, long economic lives, and that are to a large degree irreversible. These characteristics make ex-ante analysis of giga-investment difficult and require methods that can consider estimation of imprecision and the value of managerial flexibility. Fuzzy pay-off method is a recently introduced profitability analysis tool, based on using managerial cash-flow scenarios estimated by a group of experts, to form a fuzzy (possibilistic) pay-off distribution for an investment that is compatible with the requirements set by the circumstances surrounding giga-investments. Due to their large size, most giga-investments require external financing and most often lead investors must acquire insurance coverage to bring down the idiosyncratic risk of these projects to attract funding. Defining an insurance strategy requires an estimation of the risk as perceived by the group of experts (managers), who are supposed to be risk-averse. In this vein, this paper analyzes the effect of the risk aversion in the possibilistic setting, relevant to giga-investments, and in a multi-expert decision-making context. Insurance pricing for a giga-investment risk is reached through finding an optimal coinsurance rate in the group possibilistic framework. The presented models are new and contribute to the project insurance pricing literature.

Policy Options to Reduce Fragmentation in the Pooling of Health Insurance Funds in Iran.

There are fragmentations in Iran's health insurance system. Multiple health insurance funds exist, without adequate provisions for transfer or redistribution of cross subsidy among them. Multiple risk pools, including several private secondary insurance schemes, have resulted in a tiered health insurance system with inequitable benefit packages for different segments of the population. Also fragmentation might have contributed to inefficiency in the health insurance systems, a low financial protection against healthcare expenditures for the insured persons, high coinsurance rates, a notable rate of insurance coverage duplication, low contribution of well-funded institutes with generous benefit package to the public health insurance schemes, underfunding and severe financial shortages for the public funds, and a lack of transparency and reliable data and statistics for policy-making. We have conducted a policy analysis study, including qualitative interviews of key informants and document analysis. As a result we introduce three policy options: keeping the existing structural fragmentations of social health insurance (SHI)schemes but implementing a comprehensive "policy integration" strategy; consolidation of existing health insurance funds and creating a single national health insurance scheme; and reducing fragmentation by merging minor well-resourced funds together and creating two or three large insurance funds under the umbrella of the existing organizations. These policy options with their advantages and disadvantages are explained in the paper.

Social Health Insurance: A Quantitative Exploration

We quantify the welfare implications of three alternative approaches to providing health insurance: (i) a US-style mix of private and public health insurance, (ii) compulsory universal public health insurance (UPHI) and (iii) private health insurance for workers combined with government subsidies and price regulation. We use a Bewley-Grossman lifecycle model calibrated to match the lifecycle structure of earnings and health risks in the US. For all three systems we find that welfare gains triggered by a combination of improvements in risk sharing and wealth redistribution dominate welfare losses caused by tax distortions and ex-post moral hazard effects. Overall, the UPHI system outperforms the other two systems in terms of welfare gains if the coinsurance rate is properly designed. A direct comparison between the US system to a well-designed UPHI system reveals that large welfare gains are possible in the long-run. However, such a radical reform faces political impediments due to opposing welfare effects across different income groups.

Effects of reduced cost-sharing on children's health: Evidence from Japan

Although childhood health status is widely recognized as an important determinant for future achievement and health, there are few studies on the impact of patient cost-sharing on children's health. This paper investigates whether reduced cost-sharing leads to an improvement of health status among preschool and school-age children in Japan, exploiting regional disparities in expansions of municipality-level subsidy programs for out-of-pocket expenditure. With the eligibility for this subsidy program, known as the Medical Subsidy for Children and Infants (MSCI), the coinsurance rate generally decreases from 30% or 20% to zero for outpatient health care services and drug prescriptions. In order to uncover the impact of this program, I conducted an original survey of all municipalities in Japan to understand the time-series evolution of the eligible age for the MSCI in October 2013 (weighted response rate = 75%), and the probability of being eligible for the MSCI was then calculated by the age, prefecture of residence, and year. These probabilities were matched to children's health data from the Comprehensive Survey of Living Conditions from 1995 to 2010. The results show that eligibility for the MSCI improves subjective measures of health status among preschool children (n = 115,019). However, I find no such improvement among school-age children (n = 133,855). In addition, MSCI eligibility does not reduce hospitalization among either preschool or school-age children. Taken together, this study finds no discernible effects on health among school-age children, suggesting recent rapid expansions of the MSCI for this age group have not been associated with the improvement of health status.

Does health insurance decrease health expenditure risk in developing countries? The case of China

This article studies the impact of health insurance on individual out‐of‐pocket health expenditures in China. Using China Health and Nutrition Survey data between 1991 and 2006, we apply two‐part and sample selection models to address issues caused by censored data and selection on unobservables. We find that, although the probability of accessing health care increases with the availability of health insurance, the level of out‐of‐pocket health expenditure decreases. Our results from a selection model with instrumental variables suggest that having health insurance reduces the expected out‐of‐pocket health expenditure of an individual by 29.42% unconditionally. Meanwhile, conditional on being subjected to positive health expenditure, health insurance helps reduce out‐of‐pocket spending by 44.38%. This beneficial effect of health insurance weakens over time, which may be attributable to increases in the coinsurance rates of health insurances in China.

Estimating the tradeoff between risk protection and moral hazard with a nonlinear budget set model of health insurance

Insurance induces a tradeoff between the welfare gains from risk protection and the welfare losses from moral hazard. Empirical work traditionally estimates each side of the tradeoff separately, potentially yielding mutually inconsistent results. I develop a nonlinear budget set model of health insurance that allows for both simultaneously. Nonlinearities in the budget set arise from deductibles, coinsurance rates, and stoplosses that alter moral hazard as well as risk protection. I illustrate the properties of my model by estimating it using data on employer sponsored health insurance from a large firm.

Heterogeneous effect of coinsurance rate on healthcare expenditure: generalized finite mixtures and matching estimators

The article proposes a combination of finite mixture models and matching estimators to account for heterogeneous and nonlinear effects of the coinsurance rate on healthcare expenditure. The analysis with panel data for adult Japanese consumers in 2008–2010 and for female consumers in 2000–2010 demonstrates the presence of subpopulations with high, medium and low healthcare expenditure, and subpopulation membership is explained by lifestyle variables. Generalized finite mixtures provide adequate fit compared to loglinear model. Conditional average treatment effect estimations reveal the existence of nonlinear effects of the coinsurance rate in the subpopulation with high expenditure.

Externalities of National Pharmaceutical Policy when Markets are Integrated through Parallel Trade

This paper studies externalities of nationally determined cost-sharing systems, in particular coinsurance rates (patients pay a percentage of the price), under pharmaceutical parallel trade in a two-country model with a vertical distributor relationship. Parallel trade generates a price-decreasing competition effect in the destination country and a price-increasing double marginalization effect in the source country. An increase of the coinsurance rates in the destination country of the parallel import mitigates the double marginalization effect in the source country. An increase of the coinsurance rate in the source country reinforces the competition effect in the destination country. This may be a case for policy coordination in the European Union.

Parallel Trade and Reimbursement Regulation

This paper studies interaction of pharmaceutical regulation and parallel trade in a North-South framework. An innovative firm located in the North can sell its drug only in the North or in both countries. Governments may limit reimbursement for the drug. Reimbursement limits reduce the firm's incentive to supply the South, with the threat of withdrawal from the South being larger if both countries regulate as compared to only the South limiting reimbursement. Stricter regulation, i.e. a lower reimbursement limit in the Northern country increases the incentive to sell in the South. Parallel trade increases the strictness of regulation in the North, if the coinsurance rate is sufficiently low. Parallel trade does not affect the strictness of regulation in the South. If both countries cooperate in reimbursement policies, both of them adopt less strict reimbursement regimes. Cooperation increases social welfare in the North but decreases welfare in the South.

Free Medicines Thanks to Retirement: Impact of Coinsurance Exemption on Pharmaceutical Expenditures and Hospitalization Offsets in a national health service.

This paper examines the impact of coinsurance exemption for prescription medicines applied to elderly individuals in Spain after retirement. We use a rich administrative dataset that links pharmaceutical consumption and hospital discharge records for the full population aged 58 to 65years in January 2004 covered by the public insurer in a Spanish region, and we follow them until December 2006. We use a difference-in-differences strategy and exploit the eligibility age for Social Security to control for the endogeneity of the retirement decision. Our results show that this uniform exemption increases the consumption of prescription medicines on average by 17.5%, total pharmaceutical expenditure by 25% and the costs borne by the insurer by 60.4%, without evidence of any offset effect in the form of lower short term probability of hospitalization. The impact is concentrated among consumers of medicines for acute and other non-chronic diseases whose previous coinsurance rate was 30% to 40%. Copyright © 2015 John Wiley & Sons, Ltd.

Affordable False Teeth: The Effects of Patient Cost Sharing on Denture Utilization and Subjective Chewing Ability

We evaluate the impact of patient cost sharing on the use of dentures and subjective chewing ability exploiting a sharp reduction in the coinsurance rate, the percentage of costs born by the user, from 30% to 10% at the age of 70 with a regression discontinuity design. Using data from the Japanese Study of Aging and Retirement (JSTAR), we find that the utilization rate of dentures increases from approximately 50% to 63% around the threshold, implying that the extensive margin elasticity of denture usage with respect to the coinsurance rate is about -0.41. In addition, we find this jump is almost entirely due to the change in the rate among women. On the other hand, we do not find a significant improvement in self-reported chewing ability, although chewing ability may not be the only social benfi t from dentures. Our empirical findings are also confirmed by complementary analysis with randomization tests and placebo randomization tests.

Externalities of National Pharmaceutical Policy when Markets are Integrated through Parallel Trade

AbstractThis paper studies externalities of nationally determined cost‐sharing systems, in particular coinsurance rates, under pharmaceutical parallel trade in a two‐country model with a vertical distributor relationship. Parallel trade generates a price‐decreasing competition effect in the destination country of the parallel import and a price‐increasing double marginalization effect in the source country. An increase of the coinsurance rate in the destination country mitigates the double marginalization effect in the source country. An increase of the coinsurance rate in the source country reinforces the competition effect in the destination country. This may be a case for policy coordination in the European Union.

Incentives in U.S. Healthcare Operations

In my dissertation, I aim to understand incentives in U.S. healthcare operations based on my collaboration with various health organizations. In my first essay, I investigate the underlying operational and economic drives behind physicians’ test-ordering behavior in an outpatient setting, motivated by a collaborative study with University of Pittsburgh Medical Center (UPMC) Eye Center. I model the physician-patient interaction under the strategic queueing framework, and show that insurance coverage is a key driving force of overtesting. Our further analysis reveals that simply expanding cost-sharing does not constitute the solution: (i) While existing studies hold that lower out-of-pocket expenses lead to higher consumption levels, we refine this statement by showing that the copayment and the coinsurance rate drive the consumption toward different directions. (ii) Setting a low reimbursement ceiling alone cannot eliminate overtesting. (iii) The joint effect of misdiagnosis concerns and insurance coverage can lead to both overtesting and undertesting even when there is no reimbursement ceiling. These and other results continue to hold under more general conditions and so are robust. We also consider other extensions, including patient heterogeneity and information asymmetry in physician type. Motivated by the influenza vaccine industry, in my second essay, I study a supply chain contracting problem under the presence of uncertainties that are related to product design, delivery, and demand, respectively. The supply chain consists of a manufacturer and a retailer, where the retailer places an order before the flu season starts and the manufacturer decides when to produce the products. Because production after the design freeze can result in late deliveries and hence lost sales, the manufacturer may initiate production prior to the design freeze at its own risk. I show that a negative feedback loop in the firms’ incentives may arise in this supply chain; as a result, some of the traditional coordinating contracts (e.g., revenue sharing) could perform even worse than a wholesale price contract. To break the negative feedback loop requires complex contracts that are reported in practice but never studied in the literature. In view of the complexity of the coordinat-

The Design of Insurance Coverage for Medical Products Under Imperfect Competition

This paper studies the design of health insurance with ex post moral hazard, when there is imperfect competition in the market for the medical product. Various scenarios, such as monopoly pricing, price negotiation or horizontal differentiation are considered. The insurance contract specifies two types of copayments: an ad valorem coinsurance rate and a specific (per unit) copayment. By combining both copayment rates in an adequate way the insurer can effectively control the producer price, which is then set so that the producer's revenue just covers fixed costs.Consequently, a suitable regulation of the copayment instruments leads to the same reimbursement rule of individual expenditures as under perfect competition for medical products. Additional rationing of coverage because of imperfect competition as advocated by Feldstein (1973) is thus not necessary. Interestingly the optimal policy closely resembles a reference price mechanism in which copayment rates are low (possibly negative) and coinsurance rates are high.

The Design of Insurance Coverage for Medical Products Under Imperfect Competition

This paper studies the design of health insurance with ex post moral hazard, when there is imperfect competition in the market for the medical product. Various scenarios, such as monopoly pricing, price negotiation or horizontal differentiation are considered. The insurance contract specifies two types of copayments: an ad valorem coinsurance rate and a specific (per unit) copayment. By combining both copayment rates in an adequate way the insurer can effectively control the producer price, which is then set so that the producer’s revenue just covers fixed costs. Consequently, a suitable regulation of the copayment instruments leads to the same reimbursement rule of individual expenditures as under perfect competition for medical products. Additional rationing of coverage because of imperfect competition as advocated by Feldstein (1973) is thus not necessary. Interestingly the optimal policy closely resembles a reference price mechanism in which copayment rates are low (possibly negative) and coinsurance rates are high.

Mergers When Prices Are Negotiated: Evidence from the Hospital Industry

We estimate a bargaining model of competition between hospitals and managed care organizations (MCOs) and use the estimates to evaluate the effects of hospital mergers. We find that MCO bargaining restrains hospital prices significantly. The model demonstrates the potential impact of coinsurance rates, which allow MCOs to partly steer patients toward cheaper hospitals. We show that increasing patient coinsurance tenfold would reduce prices by 16 percent. We find that a proposed hospital acquisition in Northern Virginia that was challenged by the Federal Trade Commission would have significantly raised hospital prices. Remedies based on separate bargaining do not alleviate the price increases. (JEL C78, G34, I11, I13, L13)

Abstract 16185: Medicare Budget Implications of Left Atrial Appendage Closure for Stroke Risk Reduction in Non-Valvular Atrial Fibrillation

Introduction: Strokes associated with atrial fibrillation (AF) are estimated to cost Medicare $8 billion annually. Advancements in stroke prevention are aimed at improving clinical outcomes and reducing healthcare costs. This analysis quantifies the budget impact to Medicare and Medicare beneficiaries of left atrial appendage closure (LAAC) with the Watchman Device compared to warfarin, the standard of care, and rivaroxaban, the most commonly prescribed new oral anticoagulant in the US, for stroke risk reduction in non-valvular AF. Methods: A budget impact model was developed from a Medicare perspective using 2.3-year data from PROTECT AF and relative risks from ROCKET AF. The model captured all costs of treatment and associated complications. Costs for stroke included acute, direct costs as well as long-term disability costs. Cost data were from 2014 US DRGs. Medicare deductibles and co-insurance rates were used in the patient analysis. Results: In addition to better net clinical outcomes (table), LAAC is cost neutral to Medicare relative to warfarin and rivaroxaban by year 5, and one third less costly than both by year 10. Treatment-related complications comprised 33% of LAAC total costs compared to 65% for rivaroxaban and 87% for warfarin at year 5. Patient out-of-pocket costs for LAAC were lower than warfarin and rivaroxaban at 2 and 3 years, respectively. Conclusions: Upfront LAAC procedural costs are offset by ongoing therapy and complication costs associated with warfarin and rivaroxaban. LAAC with Watchman represents an opportunity for improved clinical outcomes and substantial savings to both Medicare and Medicare beneficiaries.

Cost sharing and hospitalizations for ambulatory care sensitive conditions

During the last decade, Chile's private health sector has experienced a dramatic increase in hospitalization rates, growing at four times the rate of ambulatory visits. Such evolution has raised concern among policy-makers. We studied the effect of ambulatory and hospital co-insurance rates on hospitalizations for ambulatory care sensitive conditions (ACSC) among individuals with private insurance in Chile. We used a large administrative dataset of private insurance claims for the period 2007–8 and a final sample of 2,792,662 individuals to estimate a structural model of two equations. The first equation was for ambulatory visits and the second for future hospitalizations for ACSC. We estimated the system by Two Stage Least Squares (2SLS) corrected by heteroskedasticity via Generalized Method of Moments (GMM) estimation. Results show that increased ambulatory visits reduced the probability of future hospitalizations, and increased ambulatory co-insurance decreased ambulatory visits for the adult population (19–65 years-old). Both findings indicate the need to reduce ambulatory co-insurance as a way to reduce hospitalizations for ACSC. Results also showed that increasing hospital co-insurance does have a statistically significant reduction on hospitalizations for the adult group, while it does not seem to have a significant effect on hospitalizations for the children (1–18 years-old) group. This paper's contribution is twofold: first, it shows how the level of co-insurance can be a determinant in avoiding unnecessary hospitalizations for certain conditions; second, it highlights the relevance for policy-making of using data on ACSC to improve the efficiency of health systems by promoting ambulatory care as well as population health.