Monday, August 18, 2014
Liran Einav, Stanford, Amy Finkelstein, MIT and Heidi Williams, MIT address Paying on the Margin for Medical Care: Evidence from Breast Cancer Treatments.
ABSTRACT: We present a simple framework to illustrate the welfare consequences of a “top up” health insurance policy that allows patients to pay the incremental price for more expensive treatment options. We contrast it with common alternative policies that require essentially no incremental payments for more expensive treatments (as in the United States), or require patients to pay the full costs of more expensive treatments (as in the United Kingdom). We provide an empirical illustration of this welfare analysis in the context of treatment choices among breast cancer patients, where lumpectomy with radiation therapy is a more expensive treatment than mastectomy, with similar average health beneﬁts. We use variation in distance to the nearest radiation facility to estimate the relative demand for lumpectomy and mastectomy. Extrapolating the resultant demand curve (grossly) out of sample, our estimates suggest that the “to! p-up” policy, which achieves the eﬃcient treatment decision, increases total welfare by $700-2,500 per patient relative to the current US “full coverage” policy, and by $700-1,800 per patient relative to the UK “no top up” policy. While we caution against putting much weight on our speciﬁc estimates, the analysis illustrates the potential welfare gains from more eﬃcient reimbursement policies for medical treatments. We also brieﬂy discuss additional tradeoﬀs that arise from the top-up and UK-style policies, which both lead to additional (ex-ante) risk exposure.