Zarek Brot

Working Papers:

"Who Pays for Rising Health Care Prices? Evidence from Hospital Mergers" (with Zack Cooper, Stuart Craig, Lev Klarnet, Ithai Lurie, and Corbin Miller)

October 2024, revision requested at American Economic Review

[NBER Working Paper No. 32613, June 2024]

We analyze the economic consequences of rising US health care prices. By increasing the cost of employer-sponsored health insurance, rising prices serve as a de facto payroll tax on labor. Using exposure to hospital mergers as an instrument, we estimate that a 1% increase in health care prices lowers payroll and employment at non-health-care employers by 0.4%. At the county level, a 1% increase in health care prices reduces labor income by 0.27%, increases flows into unemployment by 1%, and lowers federal income tax receipts by 0.4%. The disemployment effects of rising prices are concentrated among lower- and middle-income workers.

This paper won an ASHEcon Program Chair Award in 2023.

Media Coverage: Wall Street Journal, Axios, Planet Money, Modern Healthcare, Fast Company, Becker's Hospital Review

"Privatizing Government-Sponsored Health Insurance: Medicare Advantage vs. Traditional Medicare" (with Yalun Su, Boris Vabson, Scott Bilder, Barton Jones, Iman Mohammadi, Zulkarnain Pulungan, and Christie Teigland)

April 2025, revision requested at American Economic Journal: Economic Policy. Email me for the current working paper.

The background on this project, as well as links to media coverage of white papers we have previously released, is given here.

Publications:

"Rationing Medicine Through Bureaucracy: Authorization Restrictions in Medicare" (with Samantha Burn, Timothy Layton and Boris Vabson) 

November 2024, conditionally accepted at American Economic Review

[NBER Working Paper No. 30878/BFI Working Paper No. 2023-08, January 2023]

We study the trade-off between spending reductions and bureaucratic costs associated with managed care tools in healthcare. We leverage random assignment to Medicare Part D plans to study this trade-off for prior authorization restrictions. Prior authorization reduces a drug’s utilization by 26.9%. Half of marginal beneficiaries are diverted to another related drug, while the other half are diverted to no drug. The removal of these policies would increase drug spending by $96 per beneficiary-year (3.6% of drug spending), while eliminating $10 in paperwork costs.

Media  Coverage: Crain's Chicago Business, Medscape, AEIdeas, Becker's ASC Review, Tradeoffs, WBEZ, Fortune

"Is There Too Little Antitrust Enforcement in the US Hospital Sector?" (with Zack Cooper, Stuart Craig, and Lev Klarnet)

American Economic Review: Insights, 2024, 6(4), 526-542

[Final pre-publication manuscript, April 2024]

From 2002 to 2020, there were over 1,000 hospital mergers in the US. During this period, the Federal Trade Commission (FTC) took enforcement actions against 13 transactions. However, we find that 20% these mergers could have been predicted, using the FTC’s standard screening tools, to meaningfully lessen competition. We then show that, from 2010 to 2015, predictably anticompetitive mergers resulted in price increases over 5%. We estimate that approximately half of predictably anticompetitive mergers had to be reported to the FTC per the Hart-Scott-Rodino Act. We conclude that there appears to be underenforcement of antitrust laws in the hospital sector.

Media Coverage: Wall Street Journal [1], Wall Street Journal [2], Axios, Stat, Modern Healthcare,  Newsweek

"The Behavioral Foundations of Default Effects: Theory and Evidence from Medicare Part D" (with Timothy Layton, Boris Vabson, and Adelina Yanyue Wang)

American Economic Review, 2023, 113(10), 2718-2758

[Final pre-publication manuscript, July 2023]

[NBER Working Paper No. 28331/BFI Working Paper No. 2021-03, January 2021]

We show in two natural experiments that default rules in Medicare Part D have large, persistent effects on enrollment and drug utilization of low-income beneficiaries. The implications of this phenomenon for welfare and optimal policy depend on the sensitivity of passivity to the value of the default option. Using random assignment to default options, we show that beneficiary passivity is extremely insensitive, even when enrolling in the default option would result in substantial drug consumption losses. A third natural experiment suggests that variation in active choice is driven by random transitory shocks rather than the inherent attentiveness of some beneficiaries.

Media Coverage: Commonwealth Fund, Healthcare Economist 

"What Does a Deductible Do? The Impact of Cost-Sharing on Health Care Prices, Quantities, and Spending Dynamics" (with Amitabh Chandra, Benjamin Handel, and Jonathan Kolstad)

Quarterly Journal of Economics, 2017, 132(3): 1261-1318

[Final pre-publication manuscript, January 2017] 

[Online Appendix]

[NBER Working Paper No. 21632, October 2015]

Measuring consumer responsiveness to medical care prices is a central issue in health economics and a key ingredient in the optimal design and regulation of health insurance markets. We study consumer responsiveness to medical care prices, leveraging a natural experiment that occurred at a large self-insured firm which forced all of its employees to switch from an insurance plan that provided free health care to a non-linear, high deductible plan. The switch caused a spending reduction between 11.79%-13.80% of total firm-wide health spending. We decompose this spending reduction into the components of (i) consumer price shopping (ii) quantity reductions (iii) quantity substitutions, finding that spending reductions are entirely due to outright reductions in quantity. We find no evidence of consumers learning to price shop after two years in high-deductible coverage. Consumers reduce quantities across the spectrum of health care services, including potentially valuable care (e.g. preventive services) and potentially wasteful care (e.g. imaging services). We then leverage the unique data environment to study how consumers respond to the complex structure of the high-deductible contract. We find that consumers respond heavily to spot prices at the time of care, and reduce their spending by 42% when under the deductible, conditional on their true expected end-of-year shadow price and their prior year end-of-year marginal price. In the first-year post plan change, 90% of all spending reductions occur in months that consumers began under the deductible, with 49% of all reductions coming for the ex ante sickest half of consumers under the deductible, despite the fact that these consumers have quite low shadow prices. There is no evidence of learning to respond to the true shadow price in the second year post-switch. 

Media Coverage: New York Times [Economic View], New York Times [The Upshot], Washington Post [Wonkblog], Washington Post [Health & Science], Vox [1], Vox [2], CBS Moneywatch, Marketplace, The Conversation

This paper won the 24th Annual NIHCM Foundation Research Award in 2018.

Work in progress:

"Pharmacy Benefit Managers and Vertical Relationships in Drug Supply" (with Catherine Che and Benjamin Handel)

[A very, very preliminary sketch of the model in this paper is described in NBER Working Paper No. 29959. A version of this working paper was published in "The Economics of US Healthcare: Competition, Innovation, Regulation, and Organizations."]

Media Coverage: St. Louis Post-Dispatch

"Productivity Spillovers, Common Agency, and the Underprovision of Hospital Performance Incentives"

"Patience: Queuing in the English National Health Service" (with Samantha Burn and Clara Schreiner)

"Employee Consequences of Hospital Mergers" (with Zack Cooper, Stuart Craig, Genna Liu, and Ithai Lurie)

"Full Insurance Coverage for Injectable Insulin" (with Sriteja Reddy Burla, Steven Buschbach, and Zack Cooper)

Resting papers:

"Intermediation and Vertical Integration in the Market for Surgeons" (with Mathijs de Vaan)

[Job market paper version] 

Health care markets are increasingly dominated by large, highly-integrated systems. Understanding the impact of this integration on market outcomes is central to designing good antitrust and regulatory policy. Integration presents a central efficiency trade-off: It may improve the productive efficiency of care through coordination between primary care providers (PCPs) and specialists, but it may also reduce allocative efficiency by enabling systems to steer PCPs’ referrals towards inefficient affiliated specialists. We study how these forces shape referrals to orthopedic joint surgeons in Massachusetts. We find evidence of both effects: Breaking health systems' vertical ties would reallocate nearly 40% of patients away from formerly-integrated orthopedists but, counterintuitively, would also increase expected costs by 5%. This aggregate effect masks substantive cross-system heterogeneity in both the size of the efficiency gain and the sign and extent of the allocative distortion.