The role of health economics in addressing poverty and building better policy

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Alejandro Noriega
Two doctors speaking with notepad

Matt Notowidigdo (University of Chicago), Co-Scientific Director of J-PAL North America, and Tal Gross (Boston University) co-authored Better Health Economics. This book delves into the US health care system's complexities and provides policy recommendations based on the authors’ rigorous empirical research. J-PAL staff sat down with the authors to examine the book's approach to health economics and the impact of randomized evaluations on their understanding of the health care system, especially in advancing effective policies to alleviate poverty.

Your new book, Better Health Economics, delves into the complexities of this field. Why do you consider health economics critical in addressing poverty and shaping effective policies?

Tal: Health economics and poverty are deeply intertwined. Sky-high healthcare costs are often the tipping point into financial ruin for many, and if you're experiencing poverty, good luck accessing top-notch care. So, when we talk about health economics, we're talking about issues that hit home for millions struggling to make ends meet.

Matt: Absolutely, the issues are not just interconnected; they're mutually reinforcing. Poor health can act as a barrier to employment and educational opportunities, perpetuating cycles of poverty. So, when we delve into health economics, we also address some of the root causes that keep people entrenched in poverty.
Your research argues that health care economics operates under unique rules and challenges compared to other sectors. Could you delve into these distinct characteristics and their policy implications?

In the book's introduction, Tal discusses the need for a specialized field—health economics—to fully grasp the complexities of the healthcare system. Take insurance companies, for instance: the cost structure is directly influenced by who buys the product. This might sound straightforward, but it's a nuanced and significant concept that doesn't apply in other markets.

Tal: Exactly; while many markets function efficiently with little to no government intervention, health care is an exception. These unique challenges are the backbone of our book, shaping its table of contents.
Your book examines the contentious issues surrounding drug companies and their pricing strategies. Could you elaborate on the underlying economics that drives these conflicts and how they relate to broader health care challenges?

Tal: We aim to clarify the mechanics of health care markets, using drug companies as a prime example. Right now, they're almost universally vilified in the United States, akin to cigarette companies two decades ago. The crux of the issue is our reliance on these private entities for research and development (R&D), incentivized by the promise of future high prices. This creates an inherent tension, which we dissect in the book. Without patents and government oversight, R&D would be non-existent, affecting pharmaceuticals, medical devices, and other health care sectors.

Matt: The book explores this delicate balance between immediate high costs and the promise of future innovations. We don't just theorize; we offer concrete examples of a burgeoning drug market spurring R&D investments, patent filings, and clinical trials. This tension between today's costs and tomorrow's potential breakthroughs isn't just theoretical—researchers have substantiated it with data.
Given your focus on economic incentives and trade-offs, what insights does your book offer for tackling poverty-related challenges in health care policy?

Matt: Our book emphasizes that health economics is a distinct field, but it also shows that the economic principles of incentives and trade-offs are universal. These principles are particularly relevant when considering policies aimed at poverty alleviation.

Tal: Exactly, there's no one-size-fits-all solution. The book delves into the complexities of policy changes, especially in the context of poverty. For example, limiting drug prices might seem like an immediate win for affordability, but it comes at the cost of reduced R&D. Similarly, slashing hospital prices could compromise the quality of care. The book aims to equip readers with the nuanced understanding needed to navigate these complex trade-offs in policy, especially those that impact low-income communities.

How did randomized evaluations contribute to understanding the health care system's complexities and potential solutions in your book? What are the critical areas for future research to shape more effective health care policy?

Tal: Our book explores various randomized evaluations, starting with the Oregon Health Insurance Experiment in chapter one, which uniquely isolates health insurance's causal effect. Unlike previous studies that compared insured and uninsured individuals while adjusting for variables like income, race, gender, and health status, this experiment overcomes the inherent challenges in adjusting for all critical factors, simplifying the process of drawing definitive conclusions. This approach has been crucial in shifting our understanding of health insurance from assumptions to concrete data, particularly its impact on low-income individuals' healthcare access and financial stability.

Matt: We examine randomized evaluations of different healthcare delivery models, including the Camden program, the Nurse-Family Partnership, and studies on physician-patient racial concordance. The Camden program, targeting “super-utilizers,” showed complex challenges in reducing hospital readmissions, emphasizing the need for personalized healthcare strategies. The Nurse-Family Partnership study provided insights into nurse-led interventions for low-income pregnant individuals and their children, underscoring the long-term benefits despite no significant impact on adverse birth outcomes. Additionally, the study on physician-patient racial concordance highlighted that Black men were more likely to utilize preventive health services when seen by Black doctors, pointing to the importance of provider diversity in health care. 
In response to reviewer feedback, we added a chapter on social determinants of health (SDOH), and randomized evaluations critically sharpened our perspective on healthcare delivery improvements. We strongly encourage researchers to investigate a broader array of SDOH strategies.

For social scientists conducting research in this space, J-PAL North America’s Health Care Evaluation Toolkit offers a set of research resources that provides guidance and advice on conducting randomized evaluations of health care interventions within health systems, or using healthcare data, leveraging case studies within the United States.

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