Program on health care.

• Author: Gruber, Jonathan
• Position: Program Report

The NBER's Program on Health Care was founded in 1990 and led by its inaugural program director, Alan Garber, from 1990 until 2009. Under Alan's leadership the program grew rapidly; I have the privilege of succeeding him. The Program's researchers have expanded the boundaries of the field by asking exciting new questions, incorporating cutting edge empirical techniques, and finding new and innovative data sets to study. Interest in the work of this Program has increased enormously over the past three years, in particular as a result of the ongoing debate over the Affordable Care Act (ACA) which was passed in March 2010 and represents the most significant reform of our health care system since the introduction of Medicare and Medicaid in the mid-1960s.

While it is impossible to summarize the enormous amount of work that has been undertaken by Health Care Program researchers, this report provides an overview of research in several of the most active areas of the Program over the past five years.

Insurance Plan Choices

One of the most exciting developments in the Health Care Program has been the mix of theoretical and empirical strategies brought to bear on understanding insurance plan choices by individuals. Much of this work has been led by Amy Finkelstein, Liran Einav, and their collaborators. In one paper (14414), the authors use new data from a large private employer to develop and implement a test of the importance of adverse selection in employer-provided health insurance coverage (whereby the sick choose the most generous health insurance plans), finding that such selection does not appear to cause large welfare losses. In two subsequent papers (15241, 16723), they develop general techniques for testing insurance market theories. And, in more recent work (16969, 17802), they extend their framework to consider additional questions. Is the selection of a health insurance plan driven by the individual's understanding of how much more care he or she will use when enrolled in more generous insurance? (Yes.) Do individuals consider the implications of their current utilization for future health insurance prices that they might face? (To a modest extent, but not fully.) Additional research by Benjamin Handel (17459) shows that individuals are highly inertial in their health plan choice, and that this may be a key reason for the low welfare costs of adverse selection practice.

One important feature of recent health care reforms is an increased reliance on consumer choice of a health care plan. A number of studies have focused on the new prescription drug plan, Medicare Part D, which when introduced in 2006 allowed elders a choice of a wide range of insurance options. Initial work on this program by Florian Heiss, Daniel McFadden, and Joachim Winter (13627) showed that elders were largely making appropriate choices about whether or not to sign up for the voluntary Part D program, but also suggested that elders might not be choosing the right plan for their drug needs. My research with Jason Abaluck (14759) uses data on actual plan choices by Part D enrollees to show that enrollees are overweighting premium costs relative to the out-of-pocket costs that they incur for drugs under their Part D plans. As a result, the typical senior could have saved about 30 percent by choosing a more appropriate Part D plan. Jeffrey Kling and others (17410) confirm this when they show that providing elders with information about which drug plans would best reduce their overall out-of-pocket costs significantly affects plan choice.

Several other studies show the important effects of search frictions and failures on insurance markets. NBER researchers James Rebitzer and Lowell Taylor and their coauthors (14455) show that the enormous search costs in the non-group health insurance market lead to significant price dispersion and welfare losses. Likewise, Nicole Maestas, Mathis Schroeder, and Dana Goldman (14679) find wide price dispersion in the market for a homogeneous good, Medigap...