Research

WORKING PAPERS: 

"The Risk Protection Value of Moral Hazard" with Victoria Marone [August 2025] NBER WP #34156

Health insurance lowers the out-of-pocket price of healthcare, and it is well-established that this leads to higher utilization of care. This type of “moral hazard” is typically viewed as a social cost of insurance. Within a standard model, we show that there are two important ways in which the consumer’s ability to change her behavior in response to insurance can play a central role in the ability of insurance to protect her from risk. These are (i) by allowing optimal exploitation of real income gained in bad states, and (ii) by enabling more resources to be shifted to bad states than otherwise could be. We provide a theoretical characterization of these cases and quantify their importance empirically. Under standard parameterizations of demand for healthcare and health insurance, estimates in the literature imply that moral hazard accounts for as much as half of the total value of risk protection derived from insurance. Preventing consumers from changing their behavior in response to insurance would lower costs, but also result in a major loss of risk protection, on-net reducing consumer welfare in the population we study. Our results suggest that under-utilization of healthcare may thus be an equally important threat to welfare as over-utilization.

"Income, Health, and the Social Value of Transfers" with Amitabh Chandra and Michael Eber [April 2025] (draft coming soon) 

The central trade-off in designing public transfer programs lies in balancing the social value of a transfer against its fiscal and behavioral costs. While existing work has focused extensively on estimating these costs, much less is known about how society values transfers to individuals with different characteristics. Yet preferences over the allocation of transfers across potential recipients are measurable and well defined. This paper estimates these preferences. We field a large-scale survey experiment in which respondents allocate resources across potential recipients who vary in their level of income, age, health, and gender. Using both incentivized and hypothetical tasks, we estimate a discrete choice model that recovers the social marginal utility of income conditional on recipient characteristics. Preferences display systematic structure: individuals with low income or poor health are consistently favored, while age plays a modest role. We embed these estimates in the Marginal Value of Public Funds framework to assess the welfare implications of real-world transfer policies with limited fiscal spillovers.

"Lagged-Price Reimbursement Contracts: The Impact of Medicare Part B on Pharmaceutical Price Growth " with Keith Ericson and Amanda Starc [updated June 2025] NBER WP #31834 

We examine cost-plus lagged-price reimbursement contracts, focusing on Medicare Part B's payment for physician-administered drugs. Our theoretical model shows that lagged-price reimbursement can raise launch prices but lower prices in later periods. While previous research showed Part B increased launch prices, we estimate its effect on later prices (net of rebates). Drugs more exposed to Medicare have lower price growth. A drug with above median Part B exposure has a 10% lower price after 3 years than a below median exposure drug that launched at the same price, with a larger effect for newly approved molecules.

"Healthcare Demand Among Low-Income Individuals" [updated October 2024] TSE WP 23-1477 

Low-income individuals are typically the most price sensitive segment of the market, but this is not true in the market for health care.  Using data from the RAND and Oregon experiments, I show that low-income individuals are less likely to participate in health care markets, relative to higher income counterparts, attenuating the average demand elasticity for this group. The key insight is that income effects may exclude low-income individuals from participating because, when marginal utility of consumption is high, forgoing non-medical consumption becomes too costly. These findings have implications for policy design and model specification.

“Health Insurance for Redistribution”  with Myles Wagner and Anthony Yu [June 2023] (draft available upon request)

The paper studies the role of health insurance for health equity. We consider a social planner that cares about health inequality in addition to income inequality. Focusing on a restricted policy space that offers different health care subsidies for the rich and poor, we derive sufficient statistics formulas for optimal policy, which depends on three objects: demand elasticities of medical spending by income, the joint distribution of health, income, and medical spending, and social preferences. We calibrate the joint distribution of health, income and medical spending using the Medical Expenditure Panel Survey, and revisit the RAND Health Insurance experiment to recover demand elasticities by income. Then, we simulate the optimal joint health insurance policy and tax schedule using social welfare weights that approximate Utilitarian and Rawlsian welfare objectives over health and income. An egalitarian planner chooses Medicare for all, and a Rawlsian planner chooses a public insurance policy that is much more generous than current Medicaid: full coverage for individuals below 300% of the Federal Poverty Line, and partial coinsurance for the rest.

"Contracting Solutions with Ethical Professional Norms" [April 2022]

I study optimal health care contracting in a principal-agent framework with altruistic providers. I find that financial incentives alone cannot correct for the inefficiencies in the health care system, but financial incentives combined with ethical professional norms (altruism) can. Despite asymmetric information and imperfect agency, systems that pay using global budgets (such as the U.K.) can achieve first best outcomes, but this requires that providers value patient benefits from costlier treatments. Failing to account for altruism and using cost-reimbursement contracts creates incentives to provide low-value care, and high-volumes of these services accrue to significant economic magnitudes.

WORK IN PROGRESS:  

"Redesigning Payment Policy for Physician Administered Drugs" with Keith Ericson and Amanda Starc NIHCM Grant Award

"Income Loss Following Sickness" with Anup Malani 

“A Prescription for Manipulation” with Sayeh Nikpay and Rena Conti

PUBLICATIONS:  

“Provider Payment Systems and Incentives” with Tianxu Chen, Randall P Ellis, and Taylor Watson [forthcoming] International Encyclopedia of Public Health, Third Edition.