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Article

Childcare and Children’s Development: Features of Effective Programs  

Jo Blanden and Birgitta Rabe

Governments around the world are increasingly investing resources for young children, and universal provision of early childhood education and care (ECEC) has become widespread. Children’s development is affected by the investments they receive both within and outside the household. A simple theoretical framework predicts that the provision of public childcare will improve children’s development if it offers more stimulation than the care it replaces. Generally, carefully designed studies show that the provision of early childcare is beneficial, especially for children from disadvantaged backgrounds. This is in line with expectations that the alternative care experienced by children from less affluent, less educated, and immigrant backgrounds is likely to be of lower quality. Interestingly, however, studies show that the children who would benefit the most are least likely to receive care, providing a challenge for policy makers. Some programs, such as the $5-per-day childcare in Quebec, have negative effects and therefore may be of poor quality. However, comparing results across programs that vary in several dimensions makes it difficult to separate out the ingredients that are most important for success. Studies that focus on identifying the factors in ECEC that lead to the greatest benefit indicate that some standard measures such as staff qualifications are weakly linked to children’s outcomes, whereas larger staff–child ratios and researcher-measured process quality are beneficial. Spending more time in high-quality childcare from around age 3 has proved to be beneficial, whereas the effect of an increase in childcare for younger children is particularly sensitive to each program’s features and context.

Article

Information, Risk Aversion, and Healthcare Economics  

Hendrik Schmitz and Svenja Winkler

The terms information and risk aversion play central roles in healthcare economics. While risk aversion is among the main reasons for the existence of health insurance, information asymmetries between insured individual and insurance company potentially lead to moral hazard or adverse selection. This has implications for the optimal design of health insurance contracts, but whether there is indeed moral hazard or adverse selection is ultimately an empirical question. Recently, there was even a debate whether the opposite of adverse selection—advantageous selection—prevails. Private information on risk aversion might weigh out information asymmetries regarding risk type and lead to more insurance coverage of healthy individuals (instead of less insurance coverage in adverse selection). Information and risk preferences are important not only in health insurance but more generally in health economics. For instance, they affect health behavior and, consequently, health outcomes. The degree of risk aversion, the ability to perceive risks, and the availability of information about risks partly explain why some individuals engage in unhealthy behavior while others refrain from smoking, drinking, or the like. Information has several dimensions. Apart from information on one’s personal health status, risk preferences, or health risks, consumer information on provider quality or health insurance supply is central in the economics of healthcare. Even though healthcare systems are necessarily highly regulated throughout the world, all systems at least allow for some market elements. These typically include the possibility of consumer choice, for instance, regarding health insurance coverage or choice of medical provider. An important question is whether consumer choice elements work in the healthcare sector—that is, whether consumers actually make rational or optimal decisions—and whether more information can improve decision quality.

Article

Health Information Technology  

Jordan Everson and Melinda Beeuwkes Buntin

The potential for health information technology (HIT) to reshape the information-intensive healthcare industry has been recognized for decades. Nevertheless, the adoption and use of IT in healthcare has lagged behind other industries, motivating governments to take a role in supporting its use to achieve envisioned benefits. This dynamic has led to three major strands of research. Firstly, the relatively slow and uneven adoption of HIT, coupled with government programs intended to speed adoption, has raised the issue of who is adopting HIT, and the impact of public programs on rates of adoption and diffusion. Secondly, the realization of benefits from HIT appears to be occurring more slowly than its proponents had hoped, leading to an ongoing need to empirically measure the effect of its use on the quality and efficiency of healthcare as well as the contexts under which benefits are best realized. Thirdly, increases in the adoption and use of HIT have led to the potential for interoperable exchange of patient information and the dynamic use of that information to drive improvements in the healthcare delivery system; however, these applications require developing new approaches to overcoming barriers to collaboration between healthcare organizations and the HIT industry itself. Intertwined through each of these issues is the interaction between HIT as a tool for standardization and systemic change in the practice of healthcare, and healthcare professionals’ desire to preserve autonomy within the increasingly structured healthcare delivery system. Innovative approaches to improve the interactions between professionals, technology, and market forces are therefore necessary to capitalize on the promise of HIT and develop a continually learning health system.

Article

Incentives in Healthcare Payment Systems  

Ching-to Albert Ma and Henry Y. Mak

Health services providers receive payments mostly from private or public insurers rather than patients. Provider incentive problems arise because an insurer misses information about the provider and patients, and has imperfect control over the provider’s treatment, quality, and cost decisions. Different provider payment systems, such as prospective payment, capitation, cost reimbursement, fee-for-service, and value-based payment, generate different treatment quality and cost incentives. The important issue is that a payment system implements an efficient quality-cost outcome if and only if it makes the provider internalize the social benefits and costs of services. Thus, the internalization principle can be used to evaluate payment systems across different settings. The most common payment systems are prospective payment, which pays a fixed price for service rendered, and cost reimbursement, which pays according to costs of service rendered. In a setting where the provider chooses health service quality and cost reduction effort, prospective payment satisfies the internalization principle but cost reimbursement does not. The reason is that prospective payment forces the provider to be responsible for cost, but cost reimbursement relieves the provider of the cost responsibility. Beyond this simple setting, the provider may select patients based on patients’ cost heterogeneity. Then neither prospective payment nor cost reimbursement achieves efficient quality and cost incentives. A mixed system that combines prospective payment and cost reimbursement performs better than each of its components alone. In general, the provider’s preferences and available strategies determine if a payment system may achieve internalization. If the provider is altruistic toward patients, prospective payment can be adjusted to accommodate altruism when the provider’s degree of altruism is known to the insurer. However, when the degree of altruism is unknown, even a mixed system may fail the internalization principle. Also, the internalization principle fails under prospective payment when the provider can upcode patient diagnoses for more favorable prices. Cost reimbursement attenuates the upcoding incentive. Finally, when the provider can choose many qualities, either prospective payment and cost reimbursement should be combined with the insurer’s disclosure on quality and cost information to satisfy the internalization principle. When good healthcare quality is interpreted as a good match between patients and treatments, payment design is to promote good matches. The internalization principle now requires the provider to bear benefits and costs of diagnosis effort and treatment choice. A mixed system may deliver efficient matching incentives. Payment systems necessarily interact with other incentive mechanisms such as patients’ reactions against the provider’s quality choice and other providers’ competitive strategies. Payment systems then become part of organizational incentives.

Article

Quality in Nursing Homes  

Matteo Lippi Bruni, Irene Mammi, and Rossella Verzulli

In developed countries, the role of public authorities as financing bodies and regulators of the long-term care sector is pervasive and calls for well-planned and informed policy actions. Poor quality in nursing homes has been a recurrent concern at least since the 1980s and has triggered a heated policy and scholarly debate. The economic literature on nursing home quality has thoroughly investigated the impact of regulatory interventions and of market characteristics on an array of input-, process-, and outcome-based quality measures. Most existing studies refer to the U.S. context, even though important insights can be drawn also from the smaller set of works that covers European countries. The major contribution of health economics to the empirical analysis of the nursing home industry is represented by the introduction of important methodological advances applying rigorous policy evaluation techniques with the purpose of properly identifying the causal effects of interest. In addition, the increased availability of rich datasets covering either process or outcome measures has allowed to investigate changes in nursing home quality properly accounting for its multidimensional features. The use of up-to-date econometric methods that, in most cases, exploit policy shocks and longitudinal data has given researchers the possibility to achieve a causal identification and an accurate quantification of the impact of a wide range of policy initiatives, including the introduction of nurse staffing thresholds, price regulation, and public reporting of quality indicators. This has helped to counteract part of the contradictory evidence highlighted by the strand of works based on more descriptive evidence. Possible lines for future research can be identified in further exploration of the consequences of policy interventions in terms of equity and accessibility to nursing home care.