Categories: ASSA, News, Webinar

ASHEcon Session at 2021 ASSA Meeting

Health Care Markets and Public Policy


  • Chair: Martin GaynorCarnegie Mellon University

Regulated Revenues and Firm Behavior: Evidence from a Medicare Overhaul

  • Adam Scarny, Columbia University
  • Tal Gross, Boston University
  • Maggie Shi, Columbia University
  • David Silver, Princeton University


Hospital payment rates are a key lever for balancing government budgets and incentivizing hospital performance, but the consequences of changing rates can go beyond those intended by policymakers. To understand the broad effects of hospital payment shocks, we study a 2008 policy change in which Medicare refined its risk adjustments to these rates. This policy change differentially affected hospitals’ reimbursements vis-à-vis differences in their underlying case mixes, leading to dramatic and persistent changes in Medicare payment rates across hospitals. Hospitals responded strongly to this change in potential revenue: those that faced large gains in Medicare reimbursement increased the volume of Medicare patients they treated and lowered length of stay in order to do so. Effects were concentrated on Medicare patients, where the reform occurred, and not on Medicaid or privately-insured patients. The relative response of for-profit hospitals was larger in magnitude than the response of non-profit hospitals. Hospitals that experienced large increases in Medicare revenue became more likely to be acquired by other hospital systems. These findings demonstrate that hospitals can and do adjust patient volume in response to changes in reimbursement. The results also demonstrate the importance of payment regulation for market structure.

The Economics of Automatic Health Insurance Enrollment: Evidence and Policy Tradeoffs

  • Mark Shepard, Harvard University
  • Myles Wagner, Harvard University
Automatic enrollment is one of the best known behavioral “nudge” policies, but there is little evidence on its implications for health insurance. We study these issues using a Massachusetts health insurance exchange policy that changes the default at a key step from non-enrollment to automatic enrollment. This simple shift has a major impact, increasing enrollment by 30-50% and differentially enrolling young, healthy, low-cost individuals. We apply the evidence to an economic framework that models auto enrollment as removing a non-price “ordeal” to subsidized program take-up, which increases public spending by giving coverage to individuals who passively fail to take up. Our evidence suggests the marginal individuals have lower private value of insurance – consistent with the standard rationale for ordeals – but also much lower public cost and greater use of charity care sources. Compared to larger subsidies, we find the defaults policy has similar targeting properties but is 50-180% more cost effective because it limits new spending to marginal enrollees.

Who Values Human Capitalists’ Human Capital? Healthcare Spending and Physician Earnings

  • Maria Polyakova, Stanford University
  • Joshua Gottlieb, University of Chicago
  • Kevin Rinz, U.S. Census Bureau
  • Hugh Shiplett, University of British Columbia
  • Victoria Udalova, U.S. Census Bureau


Is government guiding the invisible hand at the top of the labor market? We study this question among physicians, the most common occupation among the top one percent of income earners, and whose billings comprise one-fifth of healthcare spending. We use a novel linkage of population-wide tax records with the administrative registry of all physicians in the U.S. to study the characteristics of these high earnings, and the influence of government payments in particular. We find a major role for government on the margin, with half of direct changes to government reimbursement rates flowing directly into physicians’ incomes. These policies move physicians’ relative and absolute incomes more than any reasonable changes to marginal tax rates. At the same time, the overall level of physician earnings can largely be explained by labor market fundamentals of long work and training hours. Competing occupations also pay well and provide a natural lower bound for physician earnings. We conclude that government plays a major role in determining the value of physicians’ human capital, but it is unrealistic to use this power to reduce healthcare spending substantially.

The Impact of Competitive Bidding in the Medicare Program

  • Amanda Starc, Northwestern University
  • Mark Duggan, Stanford University
  • Hui Ding, Stanford University


Market mechanisms may reduce growth in health care spending by lowering prices. In this paper, we study Medicare’s competitive bidding program for durable medical equipment. Exploiting granular data that allow us to examine prices and utilization, we find that spending falls by 75 percent after the implementation of a highly imperfect bidding mechanism. The effect is largely driven by large reductions in price. However, quantities also fall by 11%. To disentangle supply and demand, we exploit differential cost sharing. We measure a demand elasticity of -0.27 and argue that quantity reductions would have been larger absent a demand response. The impact on enrollee health is likely to be small: the marginal consumer is healthier than the average consumer and diagnosis rates do not fall. However, competitive bidding selects larger suppliers and leads to consolidation.


Caitlin Carroll, University of Minnesota

Benjamin Handel, University of California-Berkeley

Jeffrey Clemens, University of California-San Diego

Zack Cooper, Yale University

JEL Classifications

I1 – Health