Has the erosion of the medical marketplace ended?

This paper updates tests of the validity of three models of medical price inflation: a standard model, in which changes in demand press against inelastic supply; a dynamic version of the standard model, in which high levels of insurance induce high rates of product innovation and development; and a model of increasing inefficiency, in which consumers have weak incentives to search out efficient suppliers. Earlier statistical support for the third model has weakened, which provides some evidence that the regulatory and competitive initiatives of the last decade are having their intended effects. But time series measures of medical prices upon which the statistical evidence relies have important methodological problems, so other types of evidence are useful. Trends in expenditure in other countries and in HMOs suggest that the most important explanation of medical price inflation is the dynamic version of the standard model, although the other models have some validity as well.     

The cost and value of second surgical opinion programs: a critical review of the literature

Second surgical opinion programs (SSOPs) have been used since 1972 by both public and private insurers to improve the patient's information and decision processes and to reduce operative risks and costs attributable to questionable and perhaps unnecessary operations. This article reviews the literature on SSOPs. It considers whether SSOPs are effective mechanisms for reducing health care costs, how SSOPs affect outcomes, how physician errors affect the value of SSOPs, and what nonconfirmation rates and rates of surgery indicate about the appropriateness of operations. Although the literature varies in quality, all the studies fall short in one or more of the following dimensions: an appropriate control group, a comprehensive definition of cost and outcomes, and sufficient duration and scale to measure changes and use of medical services in a general population. Thus, the value of SSOPs remains an open question.     

The economic impacts of the tobacco settlement.

Recent litigation against the major tobacco companies culminated in a master settlement agreement (MSA) under which the participating companies agreed to compensate most states for Medicaid expenses. Here the terms of the settlement are outlined and its economic implications analyzed using data from Massachusetts. The financial compensation to Massachusetts (and other states) under the MSA is substantial. However, this compensation is dwarfed by the value of the health impacts induced by the settlement. Specifically, Medicaid spending will fall, but only by a modest amount. More importantly, the value of health benefits ($65 billion through 2025 in 1999 dollars) from increased longevity is an order of magnitude greater than any other impacts or payments. The net efficiency implications of the settlement turn mainly on a comparison of the value of these health benefits relative to a valuation of the foregone pleasure of smoking. To the extent that the value of the health benefits is not offset by the value of the pleasure foregone, the economic impacts of the MSA will include a share of these health benefits.     

Household income dynamics: a four-country story

In this article, we analyse the dynamics of household per capita incomes using longitudinal data from Indonesia, South Africa, Spain and Venezuela. We find that in all four countries reported initial income and job changes of the head are consistently the most important variables in accounting for income changes, overall and for initially poor households. We also find that changes in income are more important than changes in household size and that changes in labour earnings are more important than changes in other sources of household income.