Is technological change in medicine worth it?

Medical technology is valuable if the benefits of medical advances exceed the costs. We analyze technological change in five conditions to determine if this is so. In four of the conditions--heart attacks, low-birthweight infants, depression, and cataracts--the estimated benefit of technological change is much greater than the cost. In the fifth condition, breast cancer, costs and benefits are about of equal magnitude. We conclude that medical spending as a whole is worth the increased cost of care. This has many implications for public policy.

Declining disability among the elderly.

This paper analyzes evidence on changes in disability among the elderly and considers its implications. Disability among the elderly has declined by 1 percent or more per year for the past several decades. Strong evidence relates these changes to improved medical technology and to behavioral changes. Changes in socioeconomic status, disease exposure, and use of supportive aids are likely important as well, although their magnitude is difficult to gauge. Should disability improvements continue, the projected increase in medical spending resulting from technological changes in health care would be moderated, but not eliminated. Disability change also may facilitate an increase in age of retirement.

How does managed care do it?

Integrating the health services and insurance industries, as health maintenance organizations (HMOs) do, could lower expenditure by reducing either the quantity of services or unit price or both. We compare the treatment of heart disease in HMOs and traditional insurance plans using two datasets from Massachusetts. The nature of these health problems should minimize selection. HMOs have 30% to 40% lower expenditures than traditional plans. Both actual treatments and health outcomes differ little; virtually all the difference in spending comes from lower unit prices. Managed care may yield substantial increases in measured productivity relative to traditional insurance.

Demographics and medical care spending: standard and non-standard effects.

"In this paper, [the authors] examine the effects of likely demographic changes on medical spending for the elderly. Standard forecasts highlight the potential for greater life expectancy to increase costs: medical costs generally increase with age, and greater life expectancy means that more of the elderly will be in the older age groups. Two factors work in the other direction, however. First, increases in life expectancy mean that a smaller share of the elderly will be in the last year of life, when medical costs generally are very high.... Second, disability rates among the surviving population have been declining in recent years by 0.5 to 1.5 percent annually.... Thus, changes in disability and mortality should, on net, reduce average medical spending on the elderly. However, these effects are not as large as the projected increase in medical spending stemming from increases in overall medical costs."

Labor market responses to rising health insurance costs: evidence on hours worked.

Increases in the cost of providing health insurance must have some effect on labor markets, either in lower wages, changes in the composition of employment, or both. Despite a presumption that most of this effect will be in the form of lower wages, we document a significant effect on work hours as well. Using data from the Current Population Survey (CPS) and the Survey of Income and Program Participation (SIPP), we show that rising health insurance costs during the 1980s increased the hours worked by those with health insurance by up to 3%. We argue that this occurs because health insurance is a fixed cost, and as it becomes more expensive to provide, firms face an incentive to substitute hours per worker for the number of workers employed.

Financing, estimation, and economic effects.

Health reform is necessary to strengthen our economy and to ensure long-run federal deficit reduction. Comprehensive reform such as that proposed by President Bill Clinton is ambitious but may be the only way to guarantee universal coverage and deficit reduction in this decade. This paper describes the sources and uses of federal funds and the methodologies used to derive the administration's estimates. In addition, the paper briefly analyzes the economic effects of an employer mandate and other dimensions of the Health Security Act.

Demographic characteristics and the public bundle.

"This paper explores the relationship between the demographic characteristics of a community and the quantities of goods and services provided by its government, what we label the ¿public bundle'. We consider three models of public spending.... To evaluate these models of spending, we examine how county and state spending in the United States is affected by the age and racial composition, and the total size of a jurisdiction. We find that the estimated effects of demographic characteristics in the state equations are strikingly different from the estimated effects in the county equations. One possible explanation for these differences is that a jurisdiction's spending is affected differently by its own demographic characteristics and by the characteristics of the surrounding area. We conclude that community preference is important in explaining local spending, but that its determination is more complex than simple theory suggests."

An aging society: opportunity or challenge?

"This paper steps back from the current political debate [in the United States] over the social security trust fund and examines the more general question of how serious a macroeconomic problem aging is and how policy should respond to it. We focus primarily on issues relating to saving and capital accumulation. We do not consider the broader question of whether the current U.S. national saving rate is too high or too low, but focus on the effect of demographic changes on the optimal level of national saving. In addition, we consider the effects of demographic change on productivity growth and the optimal timing of tax collections. Our general conclusion is that demographic changes will improve American standards of living in the near future, but lower them slightly over the very long term. Other things being equal, the optimal policy response to recent and anticipated demographic changes is almost certainly a reduction rather than an increase in the national saving rate."