Working Paper 

Propensity to Consume Food out of SNAP and its Welfare Implications -submitted 


Work in Progress 

Optimal Cost-Sharing and Prior Authorization

  with Jason Abaluck and Oren Sarig  

Economists conventionally think of insurance as trading off risk protection and moral hazard. Cost-sharing mitigates overconsumption but reduces risk protection. In the last decade, prior authorization has become an increasingly important alternative means for insurers to control costs. Prior authorization imposes a bureaucratic burden on physicians for prescribing some drugs, especially high-cost ones. This paper studies optimal insurance when the insurers can use both cost sharing and prior authorization, and applies our results to the Medicare Part D prescription drug insurance market.


First, we consider a model where patients and doctors both correctly understand the value of each treatment. In this model, the key optimality condition is that the cost to risk protection of the coinsurance increase necessary to avert a dollar of treatment must equal the “paperwork costs” that must be imposed on physicians to avert a dollar of treatment. Taking this condition to the data requires estimates of conventional elasticities of utilization with respect to coinsurance rates as well as estimates of elasticities of utilization with respect to prior authorization. We estimate both, finding that the latter are considerably larger; our model implies that in the status quo, prior authorization is much less costly than cost-sharing on the margin.


If physicians are better informed than patients about what treatments are high-value, physicians faced with prior authorization may do a better job than patients faced with cost-sharing of cutting back only on treatments whose benefits do not exceed the costs. Alternatively, physicians may cut back too much when faced with prior authorization because they do not fully internalize patient benefits. To investigate these issues, we link our drug utilization data with independent assessments of the value of alternative drugs. We are currently assessing whether cost-sharing and prior authorization differentially impact high- and low- value drugs in light of this linkage.

The Impact of Subsidy on Diagnostic Test: Evidence from Korea’s Health Care Reform on MRI coverage

This project investigates the impact of subsidizing a diagnostic test on its utilization and health outcomes of patients. In Korea, the universal healthcare plan began to cover brain Magnetic Resonance Imaging (MRI) in 2018, leading to around a 60% fall in the price paid by consumers. The reform immediately raised the political debate as to whether the policy induces unnecessary utilization and whether it should be reversed. This project investigates the impact of cost-sharing on the utilization of MRI on health outcomes.


 Using administrative claims data, I find that the price elasticity of MRI utilization is around 0.8, and around 10 percent of MRI uses lead to the early diagnosis of certain neurologic illnesses, while most early detection does not lead to actual health benefits. Still, the expected gain from the early diagnosis can be substantial when it can detect rare but critical diseases such as cancer, stroke, or cerebral aneurysms early, thus preventing their development.


The paper's next goal is to build a framework to quantify a new policy’ impact on patient health outcomes and preventable care. While understanding the health impact of a new health policy is important as it better informs policymakers, this is empirically challenging because of its innate inability to observe long-run outcomes. The methodological goal is to build a framework to predict the policy's impact on long-run outcomes by combining short-term data of a behavioral response to the policy (such as the response of MRI utilization and the probability of early detection) with data of longer periods that is obtained prior to the policy (for example on how mortality could have improved if cancer was detected at stage 1 rather than stage 4).