When it comes to rooting out wasteful spending in federal entitlement programs, attention has long focused on preventing beneficiaries from gaming the system.

A new Stanford study identifies a fresh cause for concern: the for-profit companies that the U.S. government increasingly tasks with providing benefits to Americans who are often poor, elderly or both.

In a new working paper, Maria Polyakova, an assistant professor of medicine, finds that outsourcing public assistance services to third parties can lead to unanticipated effects on prices as well as on which beneficiaries gain the most from public dollars.

That’s because companies are in the business of making money. And when they know which of their consumers are likely to get certain levels of public support, they will try to use this information to maximize their profits, according to the research published this week by the National Bureau of Economic Research.

Polyakova shows that when companies act in their self-interest, unforeseen inequities and inefficiencies can arise that may hurt some consumers while helping others. At a time when governments in the United States and around the world are increasingly turning to the private sector to provide public benefits — namely in health care and in education — Polyakova says policymakers need to better understand how these intermediaries are affecting welfare programs.

“Policymakers have to be more careful about introducing intermediaries into public services,” says Polyakova, who is a faculty fellow at the Stanford Institute for Economic Policy Research (SIEPR), and teaches at the Stanford School of Medicine. She is also a core faculty member of Stanford Health Policy. “They may want to revisit how they think about outsourcing when research is showing that there are unintended consequences that may be positive or negative.”

Health Insurance Pricing under the Microscope

Intermediaries are central to a number of public services where the U.S. government provides subsidies to consumers, often based on income, age or employment status. Prominent examples include privately-managed Medicare Advantage Plans, drug benefits under Medicare Plan D, and charter schools in secondary education.

According to Polyakova, most research into wasteful spending within government subsidies has focused on consumers and how they try to trick the system by, for example, hiding income to qualify for a tax credit or cash assistance. Governments, though imperfect, have long been seen as benign players.

The increasing involvement of for-profit companies, she says, shows there’s a need to closely examine what’s happening on the supply side of public welfare.

To do that, Polyakova found an ideal setting: the federal health insurance marketplace created by the Affordable Care Act of 2010. Most consumers who shop for coverage through www.healthcare.gov receive a subsidy in the form of a tax credit that covers all or part of their insurance premium. The amount of their tax credit is tied to their household income.

The dollars at stake are significant. The Congressional Budget Office estimates that in 2019 the federal government will pay $560 billion in subsidies for privately-provided health insurance, including the spending on the Affordable Care Act marketplaces as well as other similarly designed programs. That figure is expected to hit $1.2 trillion over the next decade.

The Neighborhood Effect

Polyakova and her co-author — Stephen Ryan of Washington University’s Olin Business School — analyzed data from 2017 covering more than 9 million enrollees across some 2,570 counties around the country. They find that the presence of an intermediary significantly impacts insurance prices and key measures economists use to calculate the effects of a policy beyond a given benefit’s face value.

Specifically, they show that health insurance companies will have an incentive to raise premiums in markets where more consumers receive the higher tax credit because their incomes are low and the government is required to subsidize them.

On the flip side, insurers will charge lower prices in places where such subsidized consumers are less willing to buy coverage if they think it costs too much.

To illustrate the unintended consequences of the insurers’ actions, the researchers point out that, in the first instance where prices increase, consumers with incomes that are slightly higher than other community members will end up paying more for the same coverage. Under the second scenario, consumers who don’t qualify for the tax credit because their incomes are too high benefit from the lower premiums aimed at nearby residents.

“The price you pay for insurance will depend on who your neighbors are,” says Polyakova. “If you live near people who are poorer than you, you will be affected differently than if you live near people who are richer than you.”

Change the subsidy, change the calculation

Like with financial aid, tax credits for insurance coverage are calculated based on consumer income. But there is another type of subsidy that policymakers could use — flat vouchers, in which all members of a market receive the same benefit regardless of income, age or some other characteristic. For their research, Polyakova and Ryan also analyze how flat vouchers that only vary by age, but not by income, would hypothetically alter private health insurance prices in the federal Affordable Care Act marketplace.

Here, too, the scholars find different impacts on different types of consumers whether the subsidy is based on income or delivered as a flat voucher.

The analyses, says Polyakova, drive home the point that policymakers need to understand that there are trade-offs to relying on for-profit companies to provide government services and that the type of subsidy offered can alter how they calculate prices in disparate ways.

“There’s nothing wrong with companies trying to maximize their profits,” says Polyakova. “But sophisticated policymakers need to understand what happens when private markets get involved.”

I always find it hard to believe so many people are living in poverty: some 39.7 million Americans, or 12.3% of the population. It’s such a wealthy country, yet so many are poor.

In a twist that could be interpreted as good news — it doesn’t seem fair to say there is anything positive about living in poverty — I recently learned that older, low-income Americans tend to be healthier if they live in more affluent areas of the country.

Not only are they healthier, but their physical well-being is better across the board with a lower prevalence of dozens of chronic conditions, particularly if they live in rural communities. This, despite their income having less purchasing power in those better-resourced neighborhoods.

This was the key finding in new research published by Stanford Health Policy’s Maria Polyakova in the Annals of Internal Medicine.

While recent studies have reported that low-income adults living in more affluent areas of the United States have longer life expectancies, less has been known about the relationship between the affluence of a geographic area and morbidity of the low-income population.

“I was interested in figuring out whether the same relationship holds for morbidity: Are poorer people less sick in richer areas?” Polyakova told me. “And if so, are there any specific conditions that drive these differences that could be the target for policy-making?”

So Polyakova, a faculty fellow at the Stanford Institute for Economic Policy Research, and her co-author, Lynn M. Hua at the University of Pennsylvania, set out to evaluate the association between chronic conditions among low-income, older adults and the economic affluence of a local area. 

They focused on nearly 6.4 million Medicare beneficiaries in 2015 aged 66 to 100 years old who received low-income support under Medicare Part D, a prescription drug program for Medicare enrollees. They investigated the prevalence of 48 chronic conditions among these patients, including common chronic conditions such as hypertension, depression, diabetes and Alzheimer’s disease. They found the presence of all conditions is highly correlated: places, where the poor tend to have a high prevalence of one disease, are likely to have a high prevalence of all 48 conditions.

“While we cannot ascertain a causal relationship, our results clearly point towards the importance of further understanding why the socioeconomic environment of low-income, older adults is so tightly linked to such a broad measure of health,” the researchers wrote. 

The results, they said, were broadly consistent with the extensive literature on the social determinants of health. But their work takes that literature even further.

“Our study extends this research by providing measures of the prevalence of chronic conditions among low-income, older adults for a large national sample of the U.S. population,” Polyakova said. 

The researchers used clinical, rather than self-reported measures of diagnoses and reported this group’s variation in morbidity across local areas of the country, rather than nationally. 

“Our results raise the bar for researchers who are trying to find out what factors drive health disparities in the U.S.; these factors would have to be able to explain the differences in nearly 50 condition,” Polyakova said.

The study supported by the National Institute on Aging came to three key conclusions:

1. The health of low-income, older adults in the United States varies substantially across local geographic regions, and this variation cannot be attributed to one specific disease or a narrow set of conditions. 
2. Consistent with their original hypothesis, they found that more affluent local areas of the country have a lower prevalence of chronic conditions in the low-income, older adult population.
3. The researchers found that low-income, older adults have better health in rural areas of the country.

I wondered why these poor, older adults do particularly well in rural communities, as those regions often lack easy access to high-quality health care and state-of-the-art hospitals.

“We don’t know the exact answer, but there is a general sense that differences in the social fabric and lifestyle in rural areas — could contribute to this pattern,” Polyakova told me. “It appears that better health in these areas persists, despite challenges of accessing formal care.”

A task force of national health experts has released a draft recommendation to screen all adults 18 to 79 years for the hepatitis C virus (HCV), noting the opioid epidemic has fueled what has become the most common chronic bloodborne pathogen in the United States.

Cases of acute HCV have increased 3.5-fold over the last decade, particularly among young, white, injection drug users who live in rural areas. Women aged 15 to 44 have also been hit hard by the virus that is spread through contaminated blood.

The U.S. Preventive Services Task Force, which makes recommendations followed by primary care clinicians nationwide, has until now recommended that people who are at high risk be tested for hepatitis C, as well as “baby boomers” born between 1945 and 1965.

“Unfortunately, HCV now affects a broader age range than previously with three times as many new infections per year,” said Stanford Health Policy’s Douglas K. Owens, chair of the independent, voluntary panel of national experts in prevention and evidence-based medicine.

The Task Force now recommends that clinicians encourage all their adult patients, even those with no symptoms or known liver disease, get a blood test for the virus. Pregnant women should also be screened; from 2009 to 2014, the prevalence of HCV infection among women giving birth has nearly doubled.

“The explosive growth in HCV has been fueled by the opioid epidemic, with the spread of HCV into younger populations,” said Owens, director of the Center for Health Policy and the Center for Primary Care and Outcomes Research. “HCV now kills more Americans than all other reportable infectious diseases combined, including HIV.”

An estimated 4.1 million people in the United States are carrying HCV antibodies; about 2.4 million are living with the virus, according to the Task Force. The HCV infection becomes chronic in 75% to 85% of cases and some of those people develop symptoms such as chronic fatigue and depression, and liver diseases that can range from cirrhosis to liver cancer.

Approximately one-third of people ages 18 to 30 who inject drugs are infected with the virus; 70% to 90% of older injection-drug users are infected.

There currently is no vaccine for hepatitis C although research in the development of a vaccine is underway. But there are effective oral direct-acting antiviral (DAA) medications that can clear the virus from the body, particularly if caught early.

“The good news is that treatment for HCV is far better, and far better tolerated than in the past, offering a cure to most people,” Owens said. “Early identification of HCV is important to prevent long-term complications of HCV including liver failure, liver cancer, and death.”

The Task Force said in a release that there are several key research gaps that could inform the benefit of screening for HCV infection:

1. ·     Research is needed on the yield of repeat vs. one-time screening for HCV.
2. ·     Research is needed to identify labor management practices and treatment of HCV infection prior to pregnancy to reduce the risk of mother-to-child transmission.
3. ·     Trials and cohort studies that measure effects on quality of life, function, and extrahepatic effects of HCV infection (such as renal function, cardiovascular effects or diabetes) would be helpful for evaluating the impact of DAA regimens on short-term health outcomes.
4. ·     Additional studies are needed to examine the epidemiology of HCV infection and the effectiveness of DAA regimens in adolescents.

Physician training has long been notorious for marathon shifts, sleepless nights on call, and holidays worked. But that began to change in 2003, when the medical profession placed restrictions on work hours during residency. However, experts wondered, can we train residents in fewer hours and still make good doctors?

A new study in the BMJ says yes. The researchers, led by Dr. Anupam Jena, a professor of health care policy and medicine at Harvard Medical School, and Stanford Health Policy's Jay Bhattacharya, looked at the performance of internal medicine doctors in their first year of unsupervised medical practice after completing their training. 

They compared the outcomes for patients of two groups of physicians: those trained before 2003, when the typical work week was 100 hours; and those trained later under the new rules, which capped weekly hours at a mere 80, with no individual shift exceeding 30 hours. For the three quality measures examined — mortality within 30 days of being hospitalized, readmissions, and hospital services used (a measure of efficiency) — they found no differences between the groups.

Read More from this article published in STAT News.

A U.S. foreign policy that cuts money to nongovernmental organizations performing or promoting abortions abroad has actually led to an increase in abortions, according to Stanford researchers who have conducted the most comprehensive academic study of the policy’s impact.

Eran Bendavid and Grant Miller — both associate professors at Stanford University School of Medicine and core faculty members at Stanford Health Policy — and doctoral candidate Nina Brooks find that abortions increased among women living in African countries where NGOs, such as the International Planned Parenthood Federation, were most vulnerable to the policy’s requirements.

The policy, widely known as the Mexico City Policy, explicitly prohibits U.S. foreign aid from flowing to any NGO that will not abide by the policy’s main condition: no performing or discussing abortion as a method of family planning, even if just in the form of education or counseling.

The policy has been a political hot potato since its inception. Enacted under Ronald Reagan in 1984, it’s been enforced by subsequent Republican administrations while Democrats in the White House revoked the policy within days of taking office.

The study by Brooks, Bendavid and Miller, published June 27 in The Lancet Global Health, looked at the policy’s effects in more than two dozen African countries over a span of 20 years under three presidents: Bill Clinton, George W. Bush and Barack Obama. It finds that, when the policy was in place during the Bush years, abortions were 40 percent higher relative to the Clinton and Obama administrations.

When the policy was suspended during Obama’s two terms, the research shows that the upward trend in abortion rates reversed.

“Our research suggests that a policy that is supported by taxpayers ostensibly wishing to drive down abortion rates worldwide does the opposite,” said Bendavid, a faculty affiliate of the Stanford King Center on Global Development, which is part of the Stanford Institute for Economic Policy Research (SIEPR).

A key reason for the uptick in abortions is that many NGOs affected by the policy also provide contraceptives – and funding cuts mean birth control is harder to get, said Brooks.

“By undercutting the ability to supply modern contraceptives, the unintended consequence is that abortion rates increase,” she said.

And the policy’s scope has expanded under the Trump administration. While it originally restricted aid directed only toward providing family planning and reproductive health services, President Trump has extended the policy to cover any group engaged in global health, including organizations providing services for HIV or child health – not just family planning.

Groundbreaking Research

The stakes are high. America is the world’s largest provider of development assistance and spent about $7 billion on international health aid in 2017. Many women in sub-Saharan Africa depend on this aid for contraceptives.

In sub-Saharan Africa, NGOs are often primary providers of family planning services. Two of the world’s largest family planning organizations – International Planned Parenthood Federation and Marie Stopes International – have forfeited large sums of U.S. cash for refusing to comply with the policy, according to news reports.

The research findings were based on records of nearly 750,000 women in 26 sub-Saharan African countries from 1995 to 2014. When the policy was in effect under George W. Bush, contraceptive use fell by 14 percent, pregnancies rose by 12 percent and abortions rose by 40 percent relative to the Clinton and subsequent Obama years – an impact sharply timed with the policy and in proportion to the importance of foreign assistance across sub-Saharan Africa.

The paper is the second study of the rule’s impact by Bendavid and Miller, who are both faculty members of Stanford Health Policy. The research is also one of the very few evidence-based analyses of the policy.

Their earlier research, the first quantitative, large-scale effort to examine the policy’s impacts, looked at a smaller set of African countries during the Clinton and Bush administrations and also found an increase in abortion rates when the policy was enacted in 2001.

“Our latest study strengthened our earlier findings because we were able to look at what happens when the rule was turned off, then on, and then off again,” said Bendavid, referring to the policy’s whipsawing under Clinton, Bush and then Obama.

Miller, who is the director of the King Center and a SIEPR senior fellow, says the team’s research reveals a deeply flawed policy.

“We set out to provide the best and most rigorous evidence on the consequences of this policy,” he said. “What we found is a clear-cut case of government action that everyone on all sides of the abortion debate should agree is not desirable.”

Signs of a Global Pushback

Brooks also notes that their findings may underestimate the rule’s full impact.

“The excess abortions performed due to the policy are more likely to be performed unsafely, potentially harming women beyond pregnancy terminations,” she said.

Under Trump, the international response to U.S. funding cuts has shifted. Norway, Canada and several other countries have pledged to increase funding of international NGOs affected by the policy – though not by enough to cover the expected shortfall, says Miller.

“This shows us,” he said, “that despite the intense partisanship in the U.S. over the rule and its implementation, there are ways that policymakers around the world can offset its effects – by ensuring higher levels of family planning funding, for example.”

The world is “graying” at an unprecedented rate. According to the UN’s World Population Prospects 2019, the number of persons over the age of 65 is growing the fastest and expected to more than double by 2050, then triple in another 50 years’ time.

Some Asian countries in particular, plagued by population aging, declining fertility, and gender imbalance, are facing a grim outlook for a demographic crisis. In Japan, one in five people is now 70 or older, birthrate has dropped to a historic level, and the population declined by more than a quarter of a million last year. Meanwhile, South Korea is aging more quickly than any other developed country: with seniors on the verge of making up 14% of the population, the country is on the cusp of becoming an “aged society.” The potential impact of population aging on the labor market and the fiscal pressures on the public systems of healthcare, pensions, and social protection schemes for older adults are some of the many problems that these and other countries must tackle.

Against this background, Shorenstein APARC recently held the third annual gathering of the Stanford Asia-Pacific Innovation project, a Center-led initiative that produces academic and policy-relevant research to promote innovation and entrepreneurship in East Asia. Held in Chuncheon, South Korea and organized jointly with Hallym University’s Institute for Communication Arts and Technology, this year’s conference focused on the intersection of aging, technological development, and innovation in the region.

(Gi-Wook Shin)

APARC Director Gi-Wook Shin opened the two-day session, introducing the conference’s themes. “What policies can promote innovation and entrepreneurship in aging populations?” Shin asked. “What opportunities do new technologies offer for addressing challenges posed by East Asia’s demographic shifts, and what are the threats involved in the adoption of these new technologies?”

Joon-Shik Park, vice president of the Office of Vision and Cooperation at Hallym University,  the conference host, noted that “East Asian countries are the most important testbeds on issues related to aging and innovation,” and that sharing meaningful research and implications from the region “will provide invaluable insights for all the societies around us.”

(From left to right, Yong Suk Lee , Junichi Yamanoi , Young-Bum Kim, and Jiyoung Liu)

Family Business Succession

Demographic forces and population aging at the macro level are altering family structures and assumptions at the micro level. For example, Junichi Yamanoi of Waseda University presented a study that examined how expectations around managerial succession at family firms had a significant impact on a firm’s long-term investments.

The study surveyed over 15,000 small and medium enterprises (SMEs) in the Tokyo metropolitan area. The participants were initially asked about their firm’s attributes, CEO demographics, and succession expectations. More than a year later (a time lag that eliminated reverse causality), a sampling of respondents was then asked about their current long-term investments (e.g., R&D, new product development, and internationalization activities).

Yamanoi and his coauthors found that, when a family business’ CEO was confident that a successor would follow, their firm was more likely to engage in long-term investment. Additionally, a CEO’s expectations that the successor would be someone other than their child resulted in an even greater likelihood of long-term investment.

As part of its policy propositions, the study recommends that government agencies and SME officers eager to increase investments by SMEs introduce external candidates to such firms. Moreover, family CEOs should be cautioned against investment decisions that are too short-term in orientation, as, due to inherent aversion to losses of socioemotional wealth for the family, they may unconsciously avoid long-term investments.

(Javier Miranda)

Rethinking Age and Entrepreneurship

At a luncheon keynote address, Javier Miranda, principal economist at the U.S. Census Bureau,  shared insights into the correlations between age and high-growth entrepreneurship, considering when in life people start firms and when they start the most successful firms.

Miranda acknowledged that youth is often perceived as being crucial to entrepreneurial success, referring to Mark Zuckerberg’s dictum, “Young people are just smarter.” Venture capitalist (VC) activity seems to support this notion, said Miranda, citing a sample of 35 VC-backed “unicorns” that resulted in a mean founder age of 31. He explained that VCs' high regard of young entrepreneurs may be attributed to a belief in young people's greater deductive reasoning, transformative thinking, and higher energy, optimism, and confidence.

But does the statistical evidence support such a view? It would seem not. Miranda’s data showed that the mean age for founders of any type of firm is 41.9. Furthermore, the mean age for founders of the most successful firms (those ready for Initial Public Offering market) was 45, and a founder at age 50 was approximately twice as likely to experience successful exit or high growth compared to a founder 20 years their junior.

In fact, dependent on the starting of a firm, the probability of a founder’s success peaked in the age range of 45-59. Pointing directly to entrepreneurs like Jobs and Bezos, Miranda conceded that even extremely talented people, who may be talented enough to succeed when young, peaked in middle age.

The results of Miranda’s study seem at odds with VC attraction to younger entrepreneurs. Experience, Miranda concluded, appeared to overwhelm any potential age advantage, but more research was needed to unpack the underlying predictors of entrepreneurial success over one’s life cycle.

Role of Technology in an Aging Populace

Day two of the conference focused on the promising role technology may play as populations age. APARC Research Scholar Kenji Kushida detailed both the current and impending problems Japan faces as its population both ages and shrinks in size, and the solutions possible through technological advancement like robotics, AI, and wearable devices.

For example, Japan’s demographic shift has had a double knock-on effect on agriculture, with the percentage of farm workers age 65 or older steadily rising over the last five years and the total cultivated agricultural land decreasing each passing year. Kushida described how ICT-enabled bulldozers allow farm owners to more precisely flatten the ground in rice paddies, resulting in both greater yields and cost savings as much as 40%.

Healthcare is another significant area of concern in Japan, as healthcare costs for people over 65 are four times that of younger people and medical costs as a proportion of GDP have been increasing sharply, especially in rural areas. Shortage of physicians and diagnostic technicians is another challenge. Kushida gave an example of a technology healthcare resource that enables clinics and hospitals to upload patient medical images which are then diagnosed by medical doctors affiliated with the tool's startup developer. This low-cost solution allows smaller, rural hospitals to tap into a larger network of physicians and specialists online.

While Japan’s technological trajectory has been driven primarily by the private sector, Kushida pointed out the important role played by government actors. Specifically, within the “Abenomics” reforms of Prime Minister Shinzo Abe, several key performance indicators include support for digitizing medical records, adoption of robotics in nursing care, and extending “healthy” life expectancy.

Edited volumes collecting the papers from the annual Stanford Asia-Pacific Innovation conferences are forthcoming. These will serve as valuable references for scholars and policymakers. The first conference was held at Stanford in 2017, and examined the industrial organization of businesses and innovation clusters and how such environments affect entrepreneurship. The second conference, held in September of 2018 in Beijing, analyzed the impact of public education and financial policies pursued by East Asian countries to promote entrepreneurship.

Asia Health Policy Program Director Karen Eggleston and colleagues examine China’s progress in enhancing financial protection under its social health insurance to achieve universal health coverage.

In 2009, China launched comprehensive health system reforms to address challenges such as increasing rates of non-communicable diseases and population aging, problems with health financing and healthcare delivery, and overall growing health expectations of its people. Promoting universal health coverage by building a social health insurance system was a central pillar of the reforms.

After a decade of system reforms, has the Chinese government made good on its commitment to bolster universal health coverage? In a new article published in a BMJ collection, a team of four co-authors including Karen Eggleston, APARC’s deputy director and director of the Asia Health Policy Program, evaluates China’s progress towards enhancing financial protection of social health insurance and identifies the main gaps that need to be filled to achieve universal health coverage. Their article is part of a special BMJ collection with Peking University that marks the tenth anniversary of China’s health system reforms by analyzing their accomplishments and challenges ahead.

The 2009 reforms aimed to cover the entire Chinese population with one of three (since 2012 one of two) basic social health schemes. To provide added financial protection to patients with critical illnesses, catastrophic medical insurance was initially launched in 2012 and implemented nationally in 2015. Eggleston and her co-authors determine that the expansion of health insurance has had several major successes. First, it improved access to and use of healthcare. In 2011, China achieved near-universal health insurance coverage, with more than 95% of the Chinese population covered by health insurance. Moreover, the annual inpatient hospital admission rate increased from 3.6% in 2003 to 17.6% in 2017, and admission rates for outpatient services were much higher than the global average.

Second, the expansion of health insurance coverage reduced the share of out-of-pocket heath expenses in total health expenditure, thus raising the level of financial protection. Third, catastrophic medical insurance was also effective in supplementing the basic social health insurance schemes and provided extra financial protection to a range of vulnerable groups. By 2017, more than a billion people in China were covered by such insurance.

However, much remains to be done. Out-of-pocket health expenditures remain fairly high and are one of the main reasons for catastrophic health expenses and low financial protection in China, which disproportionately affect deprived populations. Catastrophic medical insurance currently does not target underprivileged people, while medical aid is relatively small in scale and covers only a minority of patients with catastrophic health expenses.

Eggleston and her colleagues conclude that the Chinese government should focus on underprivileged populations within the current insurance system and enhance their financial protection as an important element of targeted poverty alleviation. Such targeting, the researchers emphasize, requires a clear and integrated policy encompassing the basic social health insurance schemes, catastrophic medical insurance, medical aid, and improved healthcare efficiency.