By: Ann Burton
The 2019 ASHEcon opening plenary started with farewell remarks from Tony LoSasso, ASHEcon’s executive director for the past seven years. Two of his most memorable achievements as executive director were the creation of the American Journal of Health Economics and the move from a biannual to an annual conference. Debbie Freund will be taking over as the new executive director. Laurence Baker, the president, then introduced Kate Ho, a Professor of Economics at Princeton University and the opening plenary speaker.
Kate’s talk focused on economic models and the debate on health care market design. She explained that models are one way to answer questions that cannot be answered with observational data and quasi-experimental approaches. Models can also address mechanisms, assess counterfactuals such as regulatory changes, and recover underlying preferences and attributes, which lends well to extrapolation and welfare analysis.
One important and policy-relevant use of models is in the context of health plan menu design, which relates to how individuals can choose their optimal insurance coverage when deciding between multiple plans. To address this question, she and a coauthor used plan choice, enrollment, and claims data from Harvard University, which decreased the generosity of their insurance plan offerings in 2015. They used these data to estimate a model of insurance plan choice and medical utilization, which they then used to explore the effects of health plan menus and assess the welfare effects of counterfactual menu designs.
The summary statistics of employees by plan type are consistent with selection and moral hazard in plan choice and utilization. Simulating counterfactual menu plans generates welfare comparisons. As a first pass, she focused on maximizing average consumer surplus. For a single plan with a $0 deductible, the optimal coinsurance rate is 30.5%, which leads to an increase in average consumer surplus of $375 per household relative to a 0% coinsurance rate. When the deductible rises to $250, the optimal coinsurance rate falls to 25.3%, generating consumer surplus gains of $328 per household relative to 0% coinsurance. She then turns to a multiple plan context and simulates plans tailored to family type or the individual household level, which would eliminate selection. For a family the optimal coinsurance rate would be 28%, while it would be 36% for an individual. These rates would lead to small surplus gains of $2.50 per household.
Attempts to tailor the plans more specifically generated a mean optimal coinsurance rate of 33% and a median rate of 31%, with a $233 increase in consumer surplus. Of course, tailoring plans in this way is not feasible due to nondiscrimination laws and policies. If we could find alternative, non-monetary ways to manage selection, e.g. plan differentiation by provider networks, then we might be able to induce similar surplus gains. She concluded by cautioning that it is important to remember that this model is based on revealed preference, which assumes individuals know the value of their medical spending. Lastly, it is important to look at the distributional effects in addition to the average effects. Despite these caveats, modeling consumer surplus from insurance plans is a promising way to design optimal health care menu plans.