PIERRE-CARL MICHAUD, RAND Corporation, Labor and Population, Institute for the Study of Labor (IZA)
Email: p.c.michaud@uvt.nl
DANA P. GOLDMAN, RAND Corporation, National Bureau of Economic Research (NBER)
Email: DANA_GOLDMAN@RAND.ORG
DARIUS LAKDAWALLA, RAND Corporation, National Bureau of Economic Research (NBER)
Email: darius@rand.org
ADAM GAILEY, affiliation not provided to SSRN
YUHUI ZHENG, RAND Corporation
Email: zheng@rand.org

In 1975, 50 year-old Americans could expect to live slightly longer than their European counterparts. By 2005, American life expectancy at that age has diverged substantially compared to Europe. We find that this growing longevity gap is primarily the symptom of real declines in the health of near-elderly Americans, relative to their European peers. In particular, we use a microsimulation approach to project what US longevity would look like, if US health trends approximated those in Europe. We find that differences in health can explain most of the growing gap in remaining life expectancy. In addition, we quantify the public finance consequences of this deterioration in health. The model predicts that gradually moving American cohorts to the health status enjoyed by Europeans could save up to $1.1 trillion in discounted total health expenditures from 2004 to 2050.

Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

SAMUEL H. PRESTON, University of Pennsylvania - Population Studies Center
Email: spreston@falcon.sas.upenn.edu
JESSICA Y. HO, Population Studies Center
Email: yjho@sas.upenn.edu

Life expectancy in the United States fares poorly in international comparisons, primarily because of high mortality rates above age 50. Its low ranking is often blamed on a poor performance by the health care system rather than on behavioral or social factors. This paper presents evidence on the relative performance of the US health care system using death avoidance as the sole criterion. We find that, by standards of OECD countries, the US does well in terms of screening for cancer, survival rates from cancer, survival rates after heart attacks and strokes, and medication of individuals with high levels of blood pressure or cholesterol. We consider in greater depth mortality from prostate cancer and breast cancer, diseases for which effective methods of identification and treatment have been developed and where behavioral factors do not play a dominant role. We show that the US has had significantly faster declines in mortality from these two diseases than comparison countries. We conclude that the low longevity ranking of the United States is not likely to be a result of a poorly functioning health care system.

Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

ZHIGANG FENG, ISB, Univeristy of Zürich
Email: z.feng2@gmail.com

This paper examines the macroeconomic and welfare implications of alternative reforms to the U.S. health insurance system. In particular, I study the effect of the expansion of Medicare to the entire population, the expansion of Medicaid, an individual mandate, the removal of the tax subsidy for purchasing group insurance and providing a refundable tax credit for insurance purchases. To do so, I develop a stochastic OLG model with heterogenous agents facing uncertain health shocks. In this model individuals make optimal labor supply, health insurance, and medical usage decisions. Since buying insurance is endogenous, my model captures how the reforms may affect the characteristics of the insured as well as health insurance premiums. I use the Medical Expenditure Panel Survey to calibrate the model and succeed in closely matching the current pattern of health expenditure and insurance demand as observed in the data. Numerical simulations indicate that reforming the health insurance system has a quantitatively relevant impact on the number of uninsured, hours worked, and welfare.

STEPHEN F. BEFORT, University of Minnesota Law School
Email: befor001@tc.umn.edu
ELIZABETH CANNEY BORER, University of Minnesota Law School
Email: bore0034@umn.edu

Nearly half of large, employer-sponsored group health plans in the United States do not cover prescription contraceptives used by women. This exclusion contributes to unintended pregnancies, higher out-of-pocket expenses, and adverse social consequences. The federal courts currently are split on whether this exclusion violates Title VII as amended by the Pregnancy Discrimination Act (PDA). In a recent decision that is of first impression at the circuit court level, the Eighth Circuit ruled in In re Union Pacific Railroad Employment Practices Litigation that the lack of contraception coverage in an employee health insurance plan that covered Rogaine and Viagra for men did not violate the PDA because contraception is not related to pregnancy.

This article reviews the pertinent legislative history and case law and proposes a two-part strategy for expanding the availability of prescription contraceptives in employer-sponsored health plans. First, employers that exclude prescription contraceptives from employee health insurance plans should be held to violate the PDA. Such a violation occurs because the failure to provide insurance coverage for prescription contraceptives necessarily affects a sex-related medical condition since only women can become pregnant. This article additionally urges the adoption of an amendment to ERISA – the Equity in Prescription Insurance and Contraceptive Coverage Act – which would mandate all group health plans to include prescription coverage as a matter of federal law. Such an enactment would avoid ERISA preemption and serve to require prescription contraceptive coverage in both insurance-based and self-insured employer health plans.

FRANK R. LICHTENBERG, Columbia Business School, CESifo (Center for Economic Studies and Ifo Institute for Economic Research), National Bureau of Economic Research (NBER)
Email: frl1@columbia.edu

To provide evidence about the impact of Medicare Part D on the health status of elderly Americans, we estimate two types of Difference-in-Deviation-from-Trend models of three indicators of health status: hospitalization rates, nursing home resident rates, and mortality rates. In the first type, the treatment groups and the control groups are defined on the basis of age. In the second type, the treatment groups and the control groups are defined on the basis of location (state), because the extent to which seniors had drug coverage prior to Part D varied across states. The estimates are consistent with the hypothesis that Part D has reduced the hospitalization and nursing home resident rates of elderly patients. Also, the mortality rate of the elderly declined at a faster rate during 2005-6 than it had during either 1999-2005 or 2002-2005, whereas the mortality rate of the non-elderly did not decline at a faster rate.

JOHN H. COCHRANE, University of Chicago Booth School of Business, National Bureau of Economic Research (NBER)
Email: john.cochrane@gsb.uchicago.edu

None of us has health insurance, really. If you develop a long-term condition such as heart disease or cancer, and if you then lose your job or are divorced, you can lose your health insurance. You now have a preexisting condition, and insurance will be enormously expensive - if it's available at all. Free markets can solve this problem, and provide life-long, portable health security, while enhancing consumer choice and competition. "Health-status insurance" is the key. If you are diagnosed with a long-term, expensive condition, a health-status insurance policy will give you the resources to pay higher medical insurance premiums. Health-status insurance covers the risk of premium reclassification, just as medical insurance covers the risk of medical expenses. With health-status insurance, you can always obtain medical insurance, no matter how sick you get, with no change in out-of-pocket costs. With health-status insurance, medical insurers would be allowed to charge sick people more than healthy people, and to compete intensely for all customers. People would have complete freedom to change jobs, move, or change medical insurers. Rigorous competition would allow us to obtain better medical care at lower cost. Most regulations and policy proposals aimed at improving long-term insurance - including those advanced in Barack Obama's presidential campaign - limit competition and consumer choice by banning risk-based premiums, forcing insurers to take all comers, strengthening employer-based or other forced pooling mechanisms, or introducing national health insurance. The individual health insurance market is already moving in the direction of health-status insurance. To let health-status insurance emerge fully, we must remove the legal and regulatory pressure to provide employer-based group insurance over individual insurance and remove regulations limiting risk-based pricing and competition among health insurers.

RONEN AVRAHAM, University of Texas at Austin - School of Law
Email: ravraham@law.utexas.edu
LEEMORE S. DAFNY, Northwestern University - Department of Management & Strategy, National Bureau of Economic Research (NBER)
Email: l-dafny@kellogg.northwestern.edu
MAX M. SCHANZENBACH, Northwestern University - School of Law
Email: m-schanzenbach@law.northwestern.edu

We evaluate the effect of tort reform on employer-sponsored health insurance premiums exploiting state-level variation in the timing of reforms and a dataset of health plans representing over 10 million Americans each year. Using data from 1998 to 2006, we find that caps on non-economic damages, collateral source reform, and joint and several liability reform reduce premiums by 1 to 2 percent each. These reductions are concentrated in PPOs rather than HMOs, suggesting the latter are better able to minimize costly “defensive” medical expenses. Our results are the first direct evidence that tort reform reduces healthcare costs in aggregate.