“What Would We Eat if We Knew More: The Implications of a Large-Scale Change in Nutrition Labeling” (Job Market Paper)[pdf]
Abstract: This paper computes the welfare benefits of additional information about nutritional content in food by revealed preference and evaluates quantitatively whether the estimated behavioral response is consistent with information from experts on the relationship between diet and health. In doing so, it provides estimates of the impact of the law mandating nutrition labeling for all prepackaged foods in the US on nutrient consumption. Estimates derived from a structural model identified based on differential changes in information across foods are consistent with reduced form estimates comparing the change in calorie consumption among label users and non-label users: they suggest that the law led to a 50-100 calorie reduction in consumption among label users. Taking the estimated willingness to pay for nutrient content as given implies that the labeling law led to an increase in consumer surplus of $35-$50 annually for each label user and that additional labeling regulations could generate a comparable benefit. A comparison with expert preferences and medical evidence suggests that the actual benefits may be as much as 3 times as large, and that several thousand dollars in additional annual per capita welfare gains can be realized through policies which lead to healthier dietary behavior.
“Choice inconsistencies among the elderly: evidence from plan choice in the Medicare Part D program,” American Economic Review, Forthcoming. [pdf]
Abstract: The Medicare Part D Prescription Drug Plan represents the most significant privatization of the delivery of a public insurance benefit in recent history, with dozens of private insurers offering a wide range of products with varying prices and product features; the typical elder had a choice of roughly 40 stand-alone drug plans. In this paper we evaluate the choices of elders across this wide array of Part D options using a unique data set of prescription drug claims matched to information on the characteristics of choice sets. We first document that the vast majority of elders are choosing plans that are not on the efficient portfolio of plan choice in the sense that an alternative plan offers better risk protection at a lower cost. We then estimate several discrete choice models to document three dimensions along which elders are making choices which are inconsistent with optimization under full information: elders place much more weight on plan premiums than they do on expected out of pocket costs; they place almost no value on variance reducing aspects of plans; and they value plan financial characteristics beyond any impacts on their own financial expenses or risk. These findings are robust to a variety of specifications and econometric approaches. We develop an adjusted revealed preference approach that combines data from consumer choices with ex ante restrictions on preferences, and find that in a partial equilibrium setting, restricting the choice set to the three lowest average cost options would have likely raised welfare for elders under the program.
"How Well Do Seniors Do in Choosing Medicare Part D Plans?” American Economic Review Papers and Proceedings, Forthcoming May 2011.
(joint with Jonathan Gruber)
Abstract: Using prescription drug claims data matched to information on choice sets, we investigate the degree to which Medicare Part D plan choices are sensitive to particular classes of drugs. Are consumers insufficiently attentive to acute drugs relative to chronic drugs in their Part D plan choices? Are consumers forward looking with respect to some medical conditions but not others? Our results suggest that a limited ability to model future events as a function of current health status may have a large impact on healthcare decisions with an intertemporal component.
“How Do Stipends Affect the Supply of PhD Scientists and Engineers?” with Richard Freeman, Tanwin Chang and Hanley Chang. NBER/SEWP Report, 2004.
Research in Progress:
“The Welfare Impact of Medicare Part D”
(joint with Mark Shepard)
Abstract: This paper attempts to determine whether the subsidy for prescription drug insurance in the United States is too high or too low by developing and calibrating a model of optimal drug insurance. The model takes into account the potential benefits of additional insurance through increased risk protection, moral hazard (which is beneficial if prices exceed marginal costs), and through increased pharmaceutical innovation, as well as the costs from the shadow price of government expenditures and socially wasteful R&D which leads to business stealing rather than welfare enhancing drugs. We also consider how this calculation is impacted by the degree to which consumer surplus estimated from observed demand curves might misstate true consumer surplus either because doctors act as imperfect agent’s for patients, or because both doctors and patients are imperfectly informed about the benefits of prescription drugs. The model starts with the Baily-formula for optimal social insurance and extends it to take into account the additional factors noted above; this allows us to express the welfare gain as a function of reduced form elasticities which are either taken from the existing literature or estimated using data from the Center for Medicare and Medicaid Services which provides all prescription drug claims for a random sample of Medicare Part D enrollees.
“Consumer Choice and Choice Set Size in Health Exchanges”
(joint with Jonathan Gruber)
Abstract: A centerpiece of the health care reform recently signed into law is the creation of health insurance exchanges in each state which will provide consumers with range of insurance options that vary along many dimensions. These include the services covered and the copays offered for insured services, as well as premiums, deductibles, and out of pocket maximums. A key question raised by this approach to delivering health insurance is whether individuals will make consistent choices across plans. This paper extends a methodology developed in Abaluck and Gruber (2010) to analyze choice inconsistencies across prescription drug insurance options to the broader setting of health insurance plan choice. To do so we use data from a larger number of small firms offering between two and four health insurance choices provided the same large health insurance company. We gather data on the choice set facing each employee in these firms, as well as information on their health care spending to model the premium and expected out of pocket consequences of choice across plans. We begin by applying several tests for choice inconsistencies: do consumers appropriately trade-off premiums and out of pocket costs, do they appropriately value plan characteristics such as deductibles and coinsurance rates given their projected medical expenditures, and do they appear to value risk protection? Next, we examine the roll that choice set size plays in consumer mistakes. We separately identify the impact of choice set size on consumer choices via the scope for error (from a larger range of plans) and via a direct impact on consumers ability to map plan characteristics into monetary outcomes for each plan. Finally, we extend our analysis to consider the firm side of the market and analyze the interaction between consumer mistakes of all sorts and adverse selection.
“A Dynamic Model of Prescription Drug Utilization”
(joint with Jonathan Gruber and Ashley Swanson)
Abstract: Medicare Part D creates a non-linear pricing schedule for prescription drugs in which the price for the marginal drug depends on total expenditures to date (much like a non-linear income tax). We estimate a dynamic model of drug consumption as a function of the price of drugs in different coverage ranges. We examine how consumption varies within individuals as they pass between coverage ranges, and we estimate price elasticities at different points in time and at different locations on the pricing schedule using variation across individuals. Our theoretical model predicts that consumption should generally be insensitive to the change in prices which occurs at inframarginal coverage ranges unless individuals are myopic or "schmedule" by overresponding to average or current prices (Liebman and Zeckhauser 2004). The empirical analysis uses a dataset provided by the Center for Medicare and Medicaid Services, which provides all prescription drug claims for a random sample of Medicare Part D enrollees. By linking this data to expenditures from Medicare Parts A and B, we will investigate how offsets of other medical expenditures depend on both the quantity and timing of prescription drug consumption.
“Optimal Sin Taxes on Nutrients with Uninformed Consumers”
Abstract: This paper computes optimal sin taxes and subsidies on nutrients to correct for the disparity between the observed responsiveness to nutrient information and a benchmark responsiveness computed from medical evidence and the value of a statistical life. The model allows for heterogeneity across consumers in both health information and the value of additional life years. The model of food demand includes several thousand foods and explicitly considers the impact of different satiation assumptions on cross-price elasticities. I consider taxes on nutrients at different levels of aggregation (e.g. a single tax on calories vs. separate taxes for calories from saturated fat and fiber) and contrast these with previously proposed taxes on categories of food items such as sugary drinks.