Essays in Health Economics and Political Economy

Abstract

This dissertation examines issues in public policy---with an emphasis on health policy---from economic and political perspectives. It focuses on 1) how campaign donations influence party control in Congress, 2) racial/ethnic and educational inequalities in pharmaceutical spending, and 3) the effectiveness of cost containment policies in healthcare.

The first chapter looks at whether Democratic and Republican parties optimally allocate resources in House elections. To do so, it estimates a probabilistic voting model using a Bayesian approach and compares actual spending patterns to the amount that should have been spent under the model. The correlation between actual spending and the amount that should have been spent is over 0.5 in each non-redistricting election from 2000 to 2010 and has generally increased over time. Surprisingly, these correlations are consistent across different types of campaign donors including political parties, political action committees, and individuals.

Chapter two identifies differences in prescription drug utilization as a potential mechanism for the well known racial\ethnic and educational gradients in health. A two-part model predicts that, on average, blacks and Hispanics spend $350 and $560 less than whites respectively and that an additional 4 years of education increases prescription drug expenditures by $155. These documented disparities occur for two primary reasons: first, there are differences in the probability of being diagnosed with a disease; and second, there are gradients in expenditures conditional on diagnosis.

The final chapter uses a dynamic Bayesian model to study two quantities of interest---out-of-pocket expenditure inequality and the uncertainty of longterm spending---that are essential for evaluating cost containment reforms. It shows the distribution of spending is less concentrated over longer periods than in a single period, but that there is still substantial inequality in long-term spending. Out-of-pocket expenditures are determined more by permanent and transitory shocks than observed data so individuals face considerable uncertainty in future health costs. Implications for policy are twofold. First, reforms that increase cost sharing must consider the risks of significant inequality and additional financial risk. Second, disease management programs have the potential to reduce costs significantly, but identifying high spenders will be difficult.