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High hospital prices reflect higher quality care in markets where hospitals face competition

High prices and rising market concentration in the U.S. hospital industry have led to proposals to regulate hospital prices. Using insurance claims data, Zack Cooper from Yale and co-authors compare the outcomes of privately insured patients from the same communities who are taken by ambulance in an emergency to high- and low-priced hospitals. They find that receiving care from higher-priced hospitals reduces in-hospital mortality by about 35% on average, but this effect is only present in relatively unconcentrated markets where hospitals face competition. The authors suggest that regulating hospital prices in these markets may reduce the quality of care. However, slightly less than 70% of hospitals in the U.S. are in concentrated markets. Receiving care from higher-priced hospitals in these markets leads to substantially higher spending with no detectable effect on mortality. High prices probably reflect a lack of alternative options in these markets instead of hospital quality. The authors conclude that regulating prices in concentrated markets could be successful if regulated prices were set high enough that they did not adversely impact quality.

Removing youth from SSI increases likelihood of criminal activities

Following the 1996 welfare reform law, youth were less likely to continue receiving Supplemental Social Security Income (SSI) benefits after turning 18. Manasi Deshpande of the University of Chicago and Michael G. Mueller-Smith of the University of Michigan find that the 1996 removal from SSI at age 18 increased the number of criminal charges for an individual by 20% in the following 20 years. Most of the charges were associated with activities that generated income, with men more likely to engage in burglary and drug distribution and women more likely to engage in fraud or forgery and prostitution. Moreover, the ending of SSI benefits increased the likelihood of incarceration in any given year between ages 18 and 38 by 60%. The authors estimate that the costs of law enforcement, lost earnings, and incarceration nearly eliminate the savings to taxpayers from reduced SSI benefits.

Housing likely to contribute to high inflation in 2022

Despite a 19.9% increase in Zillow’s estimated home prices and a 14.9% increase in the Zillow Observed Rent Index between January 2021 and January 2022, official government measures showed only a 4.1% increase in residential services inflation in that time period. Marijn A. Bolhuis of the International Monetary Fund, independent researcher Judd N. L. Cramer, and Lawrence H. Summers of Harvard say that this is because housing inflation is measured as the change in prices experienced by all house occupants, rather than the change in price facing someone looking to newly acquire housing. Most renters, they note, enter into long-term (typically 12-month) fixed-cost lease agreements, so that when the cost of housing increases they may not personally experience an increase for some time. Housing costs for homeowners are measured as “owners’ equivalent rent” using actual rental payments, so this same lag applies to the costs of owner-occupied housing. Looking forward, housing costs are likely to increase as leases are renegotiated. The authors estimate that residential inflation will be close to 7% in 2022 and remain elevated in 2023. They expect residential inflation to contribute about 1 percentage point to overall PCE inflation and 3 percentage points to overall CPI inflation in 2022.

Chart of the week: Oil prices soar as Russia’s invasion of Ukraine disrupts market

Source: The Wall Street Journal

Quote of the week:

“[C]oming into [the March] this meeting, let’s say before the Ukraine invasion, the committee was set to raise our policy rate, the first of what was to be a series of raises expected for this year … And so the question now really is how the invasion of Ukraine, the ongoing war, the response from nations around the world, including sanctions, may have changed that expectation. And so it’s too soon to say for sure. But for now, I would say that we will proceed carefully along the lines of that plan. The thing is the economic effects of these events are highly uncertain. So far, we’ve seen energy prices move up further, and those increases will move through the economy and push up headline inflation. And also they’re going to weigh on spending,” says Jerome Powell, Chair of the Federal Reserve.

“The thing is we can’t know how large or persistent those effects will be. That simply depends on events to come. So this is where that leaves me. I do think it will be appropriate to raise our target range for our funds rate at the March meeting in a couple of weeks, and I’m inclined to propose and support a 25 basis point rate hike … The bottom line is that we will proceed, but we will proceed carefully, as we learn more about the implications of the Ukraine war for the economy. We use our tools to support financial stability and macroeconomic stability. We’re going to avoid adding uncertainty to what is already an extraordinarily challenging and uncertain moment.”

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