Hutchins Roundup: Health care reimbursement rates, US-China trade war, and more

What’s the latest thinking in fiscal and monetary policy? The Hutchins Roundup keeps you informed of the latest research, charts, and speeches. Want to receive the Hutchins Roundup as an email? Sign up here to get it in your inbox every Thursday. 

Decreases in reimbursement rates save money, don’t reduce amount of health care  

The U.S. spends more than any other country on health care, which has led to calls to lower reimbursement rates to health providers. The risk is that providers would respond to lower payments by restricting supply, impeding access to health care and worsening patient health outcomes. Marcus Dillender from the University of Illinois at Chicago, Anthony T. Lo Sasso from DePaul University, and Lu G. Jinks from Analysis Group examine provider responses to a 30% cut in reimbursement rates in the Illinois workers’ compensation system—one of the highest-reimbursing workers’ compensation insurance systems in the nation. Using data on more than 1.5 million claims from 2009 to 2013, they find that lowering maximum reimbursement rates reduced annual costs by over $400 million with no detectable effect on the amount of care injured workers received. The authors conclude that reducing reimbursement rates for high-reimbursing payers could reduce health care costs without major changes in care.  

US-China trade war boosted global trade   

The U.S. and China imposed tariffs on imports from each other in 2018 and 2019. Using bilateral trade data from the top 50 exporting countries over the 2014-2019 period, Pablo Fajgelbaum of Princeton and co-authors find that the trade war boosted global trade by 3%. While the U.S.-China trade war lowered trade between the two countries, it caused other exporting countries to trade more with each other in products that had higher U.S.-China tariffs. Other countries also reallocated exports toward the U.S. and away from China, the authors find. The export response — which varied across countries — was driven by the sensitivity of each country’s exports to price changes rather than its specialization in the tariff-targeted items. Factors such as pre-trade war reallocation capacity and scale economies may have enabled the boost in exports, the authors suggest, ensuring that “the trade war created new trade opportunities in aggregate and did not simply reshuffle trade flows.”  

Job training program gains were erased during the pandemic   

Using data from a randomized control trial in Cali, Colombia, Felipe Barrera-Osorio of Vanderbilt, Adriana D. Kugler of Georgetown, and Mikko I. Silliman of Harvard find that workers who received job training fared no better during the pandemic than those without job training. Participants randomly assigned to receive job training (primarily in service fields) initially saw higher monthly earnings and employment rates, they find. However, the differences were erased when the pandemic hit, with both groups having similar employment outcomes starting in March 2020. The authors note that the pandemic uniquely affected service workers, which may have played a role in these results. Moreover, the training program included only 160 classroom hours and was completed only a year and a half before the start of the pandemic; longer training programs and workers with longer tenures at their jobs may have fared better, they say.  

Chart of the week: US 2-year Treasury yield rises sharply as Fed signals interest rate increases in 2022 

Source: Tullett Prebon, The Wall Street Journal  

Quote of the week:  

“[I] think we are well-positioned to deal with what’s coming, with the range of plausible outcomes that can come. I think if you look at how we got here, I do think we’ve been adapting to the incoming data, really all the way along, and noticing and calling out that both the effects and the persistence of inflation, of bottlenecks, and labor shortages, and things like that. We’ve been calling out the fact that those were becoming longer and more persistent and larger. And now we’re in a position where we’re ending the taper by March…and we’ll be in a position to raise interest rates as and when we think it’s appropriate. And we will, to the extent that’s appropriate,” says Jerome Powell, Chair of the Federal Reserve. 

“I think that the data that we got toward the end of the fall was a really strong signal that inflation is more persistent and higher and that the risk of it remaining higher for longer has grown. And I think we’re reacting to that now, and we’ll continue to adapt our policy. So, I wouldn’t look at it that we are behind the curve. I would look at it that we’re in position now to take the steps that we need to take in a thoughtful manner to address all of the issues including that of too high inflation.” 

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