The Anatomy of Health Insurance

This article describes the anatomy of health insurance. It begins by considering the optimal design of health insurance policies. Such policies must make tradeoffs appropriately between risk sharing on the one hand and agency problems such as moral hazard (the incentive of people to seek more care when they are insured) and supplier-induced demand (the incentive of physicians to provide more care when they are well reimbursed) on the other. Optimal coinsurance arrangements make patients pay for care up to the point where the marginal gains from less risk sharing are just offset by the marginal benefits from less wasteful care being provided. Empirical evidence shows that both moral hazard and demand-inducement are quantitatively important. Coinsurance based on expenditure is a crude control mechanism. Moreover, it places no direct incentives on physicians, who are responsible for most expenditure decisions. To place such incentives on physicians is the goal of supply-side cost containment measures, such as utilization review and capitation. This goal motivates the surge in managed care in the United States, which unites the functions of insurance and provision, and allows for active management of the care that is delivered. The analysis then turns to the operation of health insurance markets. Economists generally favor choice in health insurance for the same reasons they favor choice in other markets: choice allows people to opt for the plan that is best for them and encourages plans to provide services efficiently. But choice in health insurance is a mixed blessing because of adverse selection -- the tendency for the sick to choose more generous insurance than the healthy. When sick and healthy enroll in different plans, plans disproportionately composed of poor risks have to charge more than they would if they insured an average mix of people. The resulting high premiums create two adverse effects: they discourage those who are healthier but would prefer generous care from enrolling in those plans (because the premiums are so high), and they encourage plans to adopt measures that deter the sick from enrolling (to reduce their overall costs). The welfare losses from adverse selection are large in practice. Added to them are further losses from having premiums vary with observable health status. Because insurance is contracted for annually, people are denied a valuable form of intertemporal insurance -- the right to buy health coverage at average rates in the future should they get sick today. As the ability to predict future health status increases, the lack of intertemporal insurance will become more problematic. The article concludes by relating health insurance to the central goal of medical care expenditures - better health. Studies to date are not clear on which approaches to health insurance promote health in the most cost-efficient manner. Resolving this question is the central policy concern in health economics.

Energy and Economic Growth

Physical theory shows that energy is necessary for economic production and therefore growth but the mainstream theory of economic growth, except for specialized resource economics models, pays no attention to the role of energy. This paper reviews the relevant biophysical theory, mainstream and resource economics models of growth, the critiques of mainstream models, and the various mechanisms that can weaken the links between energy and growth. Finally we review the empirical literature that finds that energy used per unit of economic output has declined, but that this is to a large extent due to a shift from poorer quality fuels such as coal to the use of higher quality fuels, and especially electricity. Furthermore, time series analysis shows that energy and GDP cointegrate and energy use Granger causes GDP when additional variables such as energy prices or other production inputs are included. As a result, prospects for further large reductions in energy intensity seem limited.

Adverse Selection in Health Insurance

Individual choice over health insurance policies may result in risk-based sorting across plans. Such adverse selection induces three types of losses: efficiency losses from individuals being allocated to the wrong plans; risk sharing losses since premium variability is increased; and losses from insurers distorting their policies to improve their mix of insureds. We discuss the potential for these losses, and present empirical evidence on adverse selection in two groups of employees: Harvard University, and the Group Insurance Commission of Massachusetts (serving state and local employees). In both groups, adverse selection is a significant concern. At Harvard, the University's decision to contribute an equal amount to all insurance plans led to the disappearance of the most generous policy within 3 years. At the GIC, adverse selection has been contained by subsidizing premiums on a proportional basis and managing the most generous policy very tightly. A combination of prospective or retrospective risk adjustment, coupled with reinsurance for high cost cases, seems promising as a way to provide appropriate incentives for enrollees and to reduce losses from adverse selection.

The Economic Impacts of the Tobacco Settlement

Recent litigation against major tobacco companies culminated in a Master Settlement Agreement' (MSA) under which the participating companies agreed to compensate most states for Medicaid expenses. We outline the terms of the settlement and analyze whether it was a move toward economic efficiency using data from Massachusetts. Medicaid spending will fall, but only a modest amount ($0.1 billion). The efficiency issue turns mainly on the treatment of health benefits from reduced smoking induced by the settlement. We conclude that the settlement was a move towards economic efficiency.

Selection Stories: Understanding Movement Across Health Plans

This study assesses the factors influencing the movement of people across health plans. We distinguish three types of cost-related transitions: adverse selection, the movement of the less healthy to more generous plans; adverse retention, the tendency for people to stay where they are when they get sick; and aging in place, where lack of all movement makes plans with initially older enrollees increase in cost over time. Using data from the Group Insurance Commission in Massachusetts, we show that aging in place and adverse selection are both quantitatively important. Each can materially impact equilibrium enrollments, especially when premiums to enrollees reflect these costs.

Probing Stellar Dynamics in Galactic Nuclei

Electromagnetic observations over the last 15 years have yielded a growing appreciation for the importance of supermassive black holes (SMBH) to the evolution of galaxies, and for the intricacies of dynamical interactions in our own Galactic center. Here we show that future low-frequency gravitational wave observations, alone or in combination with electromagnetic data, will open up unique windows to these processes. In particular, gravitational wave detections in the 10^{-5}-10^{-1} Hz range will yield SMBH masses and spins to unprecedented precision and will provide clues to the properties of the otherwise undetectable stellar remnants expected to populate the centers of galaxies. Such observations are therefore keys to understanding the interplay between SMBHs and their environments.Comment: 8 pages, Science white paper for the Astro2010 Decadal Surve

Biological Inventory of Anchialine Pool Invertebrates at Pu‘uhonua o Hōnaunau National Historical Park and Pu‘ukoholā Heiau National Historic Site, Hawai‘i Island

Reports were scanned in black and white at a resolution of 600 dots per inch and were converted to text using Adobe Paper Capture Plug-in.Inventories for major groups of invertebrates were completed at anchialine pool complexes in Pu‘uhonua o Hōnaunau National Historical Park (PUHO) and Pu‘ukoholā Heiau National Historic Site (PUHE) on the island of Hawai‘i. Nine pools within two pool complexes were surveyed at PUHO, along with one extensive pool at the terminus of Makeāhua Gulch at PUHE. At both parks, inventories documented previously unreported diversity, with pool complexes at PUHO exhibiting greater species richness for most taxa than the pool at PUHE. Inventories at PUHO recorded five species of molluscs, four species of crustaceans (including the candidate endangered shrimp Metabetaeus lohena), two species of Orthoptera, four species of Odonata (including the candidate endangered damselfly Megalagrion xanthomelas), fourteen species of Diptera, nine taxa of plankton, and thirteen species of ants; inventories at the PUHE pool produced only one species of mollusc, two species of crustacean, at least one species of Orthoptera, four species of Odonata, thirty species of Diptera, five taxa of plankton, and four species of ants. Further survey work may be necessary to document the full diversity of pool fauna, especially in species-rich groups like the Diptera. Inventory data will be used to generate a network wide database of species presence and distribution, and will aid in developing management plans for anchialine pool resources.This inventory was made possible thanks to support from the National Park Service Inventory and Monitoring Program and the U.S. Geological Survey Pacific Island Ecosystems Research Center

Explaining the Rise in Educational Gradients in Mortality

The long-standing inverse relationship between education and mortality strengthened substantially later in the 20th century. This paper examines the reasons for this increase. We show that behavioral risk factors are not of primary importance. Smoking has declined more for the better educated, but not enough to explain the trend. Obesity has risen at similar rates across education groups, and control of blood pressure and cholesterol has increased fairly uniformly as well. Rather, our results show that the mortality returns to risk factors, and conditional on risk factors, the return to education, have grown over time.

Validation and extension of an empirical Bayes method for SNP calling on Affymetrix microarrays

Extended and validated CRLMM is shown to be more accurate than the Affymetrix default programs, and datasets and methods for validation are presented that can serve as standard benchmarks by which future SNP chip calling algorithms can be measured