Colleen Carey

Robert Wood Johnson Foundation Scholar in Health Policy Research

University of Michigan

An economist by training, my research focuses on the industrial organization of health care, with special attention to federal regulation of health insurance markets. In 2015, I will join the Department of Policy Analysis and Management at Cornell University as an assistant professor.
  • Curriculum Vitae
  • Working Papers
    • Government Payments and Insurer Benefit Design in Medicare Part D (revision requested)
    • This paper demonstrates health insurers' incentives to design benefits that differentially appeal to profitable enrollees in Medicare Part D. A system of diagnosis-specific payments aimed to neutralize insurer benefit design incentives by paying insurers more for the sick than for the healthy. These diagnosis-specific payments were held steady despite technological change -- new drug entry and the onset of generic competition -- changing diagnoses’ treatment costs. I exploit variation in diagnosis-specific profitability driven by exogenous technological change to show that Part D insurers covered drugs that treat profitable diagnoses at higher rates and lower copayments than drugs that treat unprofitable diagnoses. This paper introduces a novel instrument – new drug entry and the onset of generic competition – to detect insurers’ benefit design incentives in a regulated health care market.
    • Pass-Through of Public Subsidies in Health Insurance
    • Public health insurance is increasingly provided indirectly by private health insurers receiving government subsidies. Previous models find that these subsidies can cause insurers to distort benefits towards services that attract profitable individuals and conversely to provide less favorable benefits for services preferred by unprofitable individuals. This theoretical analysis incorporates an upstream medical provider from whom the insurer must purchase medical services and who takes government subsidies into account when choosing service price. In this setting, government subsidies are ``passed-through'' both to consumers (in the form of benefit design) and the upstream service provider (in the form of service price). In this setting, insurer benefit design responds less strongly to subsidies than in the case of exogenous service prices. In addition, this paper demonstrates how pass-through of government subsidies in health insurance markets depends critically on the concavity or convexity of log-demand (a common feature of pass-through models) as well as the relative curvature of demand for insurance relative to demand for medical services.
    • Sharing the Burden of Subsidization: Evidence from a Payment Update in Medicare Part D
    • This paper explores a revision of the system of diagnosis-specific payments that aimed to neutralize insurer benefit design incentives in a publicly-subsidized program of private prescription drug insurance, Medicare Part D. In Medicare Part D, insurers are paid on the basis of enrollee diagnoses; in principle, insurers are indifferent between individuals with different diagnoses due to this system of diagnosis-specific payments. Between 2010 and 2011, the diagnosis-specific payment system was reorganized and recalibrated, changing an insurer's incentive to enroll an individual with a particular diagnosis. This research demonstrates that, consistent with prior theory on how insurers design benefits in environments like Part D, insurers increased coverage and reduced copays for drugs that treat diagnoses that received positive payment updates. We then use the payment system revision as an instrumental variable for benefits in a demand estimation that recovers an overall drug demand elasticity.
    • Whose $800 Billion?: Pass-Through of Public Subsidies in Medicare Part D (with Ying Fan and Elena Krasnokutskaya)
    • In recent years a new model of public service provision has arisen in which subsidies to private markets replace direct provision of services. Critics claim that the incidence of such subsidies falls partially on private firms instead of falling fully on the intended beneficiaries. This paper analyzes the system of diagnosis-specific subsidies in Medicare Part D, a program of publicly-subsidized private prescription drug insurance. In Medicare Part D, insurers negotiate prices with drug firms and then compete for enrollees; insurers receive a subsidy that is based on their enrollees’ diagnoses. Our basic aim is to quantify how an additional dollar more in subsidy would be divided among prescription drug manufacturers, insurers, and Part D enrollees. We also compare the division of the subsidy across different diagnoses as a function of drug competition among drugs treating the diagnosis (presence of branded and generic substitutes).
  • Published Papers
    • Buchmueller, Thomas, Colleen Carey, and Helen Levy. 2013. ``Will Employers Drop Health Insurance Coverage Because of the Affordable Care Act?'' Health Affairs. 32(9): 1522-1530.
    • Carey, Colleen and Stephen Shore. 2013. ``From the Peaks to the Valleys: Cross-State Evidence on Income Volatility Over the Business Cycle.'' Review of Economics and Statistics. 95(2): 549-562.
    • Sommers, Benjamin D., Thomas Buchmueller, Sandra L. Decker, Colleen Carey, and Richard Kronick. 2013. ``The Affordable Care Act Has Led To Significant Gains In Health Insurance And Access To Care For Young Adults.'' Health Affairs. 32(1): 1-11.