Improving Information for Social Policy Decisions -- The Uses of Microsimulation Modeling Volume I, Review and Recommendations (1991) / Chapter Skim
Currently Skimming:
8 Microsimulation Modeling of Health Care, Retirement Income, and Tax Policies
8 Microsimulation Modeling of Health Care, Retirement Income, and Tax Policies
Pages 194-230
The Chapter Skim interface presents what we've algorithmically identified as the most significant single chunk of text within every page in the chapter.
Select key terms on the right to highlight them within pages of the chapter.
From page 194... ...
Because we do not pretend to have any particular expertise in foreseeing the future mix of policy issues, we cannot offer unequivocal advice on this question. We note, however, that health care policy is an area of growing importance because of the escalating costs of providing health services and the evidence of glaring gaps in the health care system, such as the large population not covered by private or public health insurance.
|
From page 195... ...
To achieve this goal, whether for income support, health care, or any other policy area, databases need to be broad in scope, models need to follow good design principles and practices, and agencies need to find ways to further fruitful interactions between policy research and modeling. HEALTH CARE POLICIES Some of the reasons that health care policy issues are of continuing and increasing concern to decision makers are evident from the following selected indicators: .
|
From page 196... ...
, who reviewed some of the existing health care policy models, and Grannemann (1989) , who reviewed issues in modeling behavioral responses to health care policy changes.
|
From page 197... ...
To date, researchers working in this field have largely applied their estimated parameters to cell-based models, such as life tables, to analyze alternative scenarios. It may well be that putting this type of risk-factor analysis in a microsimulation framework and, furler, effecting a linkage with microsimulation models of health care financing and coverage issues could have potential payoffs for analysis of health policy issues.3 Microsimulation Modeling for Health Care Policy Microsimulation has played a role in analysis of heals care cost and coverage issues since He technique was first introduced to the political process.
|
From page 198... ...
The developers of PRISM recently built the Health Benefits Simulation Model, a comprehensive model for the household sector designed to simulate health insurance coverage, health services use, total health care spending, and sources of payment among the noninstitutionalize~d population (see Chollet, 1990~. CBO has developed a microsimulation model for simulating changes in Medicare benefits, based largely on Medicare administrative records, that was used to estimate the costs and distributional effects of alternative ways to insure against catastrophic health care costs under the Medicare program (Congressional Budget Office, 1988~.4 CBO has also developed models of Medicare and Medicaid eligibility.
|
From page 199... ...
All of these health care policy microsimulation modeling efforts have dealt with the household sector and plenarily with issues of expanding health insurance coverage and the associated costs to the federal and state governments for reimbursing medical care charges. Microsimulation-based models have also been developed to examine issues that affect the supply side of the health care market.
|
From page 200... ...
Issues in Modeling Health Care Policy Alternatives The limited application of microsimulation modeling in the health care policy area and, indeed, the failure of any particular modelers) , regardless of type, to gain widespread use for health care policy analysis result from the complexity 61he President's Ccnmnission on Pensia1 Policy and the National institute on Aging initiated development of this model in 1979.
|
From page 201... ...
Agencies of the Department of Health and Human Services (HHS) with important roles in this regard include ASPE, the Health Care Financing Administration, the Agency for Health Care Policy and Research, the National Institute on Aging, and the National Center for Health Statistics, among others.
|
From page 202... ...
As another example, changes in public health insurance benefits are likely to affect the market for private health insurance and thereby influence total and public-sector health costs in unforeseen ways.9 As still another example, it is widely aclmowledged that physicians have a large influence over levels and costs of medical services because of such factors as the limited information available to patients on prices and services. Hence, it is important to consider physician behavior in evaluating alternative health care financing and payment policies.
|
From page 203... ...
They did include a first-round behavioral response, with the assumption that physicians would strive to meet a target income. Specifically, they assumed that 50 percent of a physician's potential income loss due to the new Medicare fee schedule would be offset by an increase in volume of services, and 35 percent of a physician's potential gains would be offset by a decline in volume (Congressional Budget Office, 1990:Appendixes; see also Chollet, 1990)
|
From page 204... ...
and the Medicaid "tape-to-tape" data from state administrative records.l4 The March CPS senses as the primary database for simulating Medicaid eligibility on the basis of AFDC and SSI, while the Medicaid data provide a basis for estimating enrollment (participation) rates and medical care utilization and expenses.
|
From page 205... ...
The aging process uses data from the March CPS, the National Health Interview Survey, and a Lewin/ICF survey of employer health insurance plans. Control totals from the National Health Accounts are used to calibrate the total health expenditures by senice type and payment source estimated from the NMCUES.~s Data about characteristics of employer-provided insurance plans from the Lewin/ICP survey are appended to the NMCUES records through a statistical matching process.
|
From page 206... ...
Like NMCES, He NMES also included ancillary surveys of employer health insurance plans and medical providers listed by NMES households. Finally, the 1987 NMES included an institutionalized component, comprising 13,000 residents of nursing and personal care homes, psychiatric facilities, and facilities for the mentally retarded.
|
From page 207... ...
The CBS is intended to provide larger samples of the elderly than do most other surveys and to obtain additional information about beneficiary characteristics that the Medicare claims records cannot provide (Health Care Financing Administration, 1990~.18 As another example, the National Center for Health Statistics is planning to coordinate its surveys of providers, including hospitals and nursing homes, and conduct them on a more frequent basis. As yet other examples, the March CPS, which added questions on health insurance coverage in 1980, added questions in 1988 to improve measures of health insurance coverage for children and for nonworking adults (such as retirees)
|
From page 208... ...
Yet we are also aware that microsimulation models can be costly and time consuming to develop and apply, particularly when first-round and even second-round behavioral responses have to be modeled in addition to direct effects. In our view, it is imperative for HHS to set up a department-wide coordinating and steering body to determine priorities both for microsimulation model development in the health care area and for needed data collection and research studies that will lead to improved models.
|
From page 209... ...
In Reticular, microsimulation models for health care policy should be developed with superior capabilities to facilitate validation. Long-term care and other health-related policy issues involve long time horizons, for which it is important to conduct extensive sensitivity analyses, as well as to prepare variance estimates, in order to establish a sense of the range of reasonable projections.20 Modifying physician or hospital reimbursement schemes, as well as many other health care benefit changes, can be expected to have first- and second-round behavioral effects, again necessitating careful and thorough validation.
|
From page 210... ...
As argued in Chapter 6, model developers must consciously trade off the scope of a model versus the detail of model components, and this principle is particularly important to apply for health care models. Clearly, the HHS coordinating body, and others involved in health care model development, must think broadly in conceptualizing the requirements for improved microsimulation models and must develop a comprehensive plan to guide their specifications for needed data and research.
|
From page 211... ...
Hence, health care policy modelers will continue to confront the necessity to use multiple data sources and to relate them through the use of techniques such as imputation and statistical matching. Given this situation, we urge that HHS consider, periodically, sponsoring very comprehensive smallscale surveys that can be used to validate the quality of the imputations and matches performed by health care policy models (see Chollet, 1990, on this point)
|
From page 212... ...
The policy debate has also addressed issues of private pension coverage and benefits, and how the private pension system meshes (or does not mesh) with social security and civil service retirement.23 23 The discussion in this section benefited greatly from a paper reviewing the two major retirement income microsimulation models, DYNASIM2 and PRISM, which was prepared for the panel by Ross (in Volume II)
|
From page 213... ...
Microsimulation models have also played an important role in evaluating alternative pension policies, particularly when the questions raised involve complex issues affecting particular population groups or the intersection of public and private pension systems. Because of the need to see how changes in retirement income policies interact with demographic and employment changes over the long term, simulations of pension programs have almost always used dynamic models that can project detailed individual and family histories over periods of 2040 or more years.
|
From page 214... ...
The redesign also focused DYNASIM2 on retirement issues, although the model has been used for over applications as well, such as an analysis of the implications of alternative rates of teenage pregnancy for government transfer program costs and an analysis of He demand for long-term care services over the period 19902030. The DNYASIM2 model has been applied in many different retirementrelated analyses: for example, it was used to project the impact of earnings sharing proposals, which the Actuary's model could not handle.25 Agencies using DYNASIM2 for analysis of retirement income programs include the Congressional Budget Office, Department of L abor, and Department of Health and Human Services.
|
From page 215... ...
Moreover, in applications that require long projection periods, as is the case for most retirement income issues, dynamic microsimulation models confront the inescapable problem that the quality of their projections deteriorates over time. Not only are errors in multiple sources likely SO compound, but people are likely to change their behavior in ways that cannot be foreseen.
|
From page 216... ...
We see two fundamental requirements for dynamic models of retirement income policies first, the need for linked survey and administrative data that are periodically updated to provide the initial database; and second, the need for continual modification from updated research results of the transition probabilities that are used to project the individual data records in terms of marital, childbearing, labor force, and other behaviors. Linked Data Models such as DYNASIM2 and PRISM rely on social security administrative records of earnings histories linked with the cross-sectional demographic and socioeconomic information in the March CPS as the foundation of their longitudinal databases for simulating retirement income policies.
|
From page 217... ...
We recommend that the Census Bureau perform a new exact match of social security earnings histories with the March CPS as soon as possible. The Census Bureau should develop a program for periodically conducting matches of social security earnings histories with both the March CPS and SIPP records.
|
From page 218... ...
estimated from pooled 1968-1981 data from the Panel Study of Income Dynamics. The need for the kind of research that we recommend in Chapter 6 to narrow the range of estimates of behavioral parameters such as the propensity to move in and out of the labor force is clearly critical to the quality of dynamic models for retirement income policies.
|
From page 219... ...
population, virtually require that tax policy analysis be conducted at the micro level.34 Microsimulation Modeling for Tax Policies Historically, there has been a need to apply microsimulation techniques to calculate the revenue effects of proposed changes in tax policies, and to answer questions about the fairness of tax policies for different population subgroups. In the 1980s, the constraints of the growing federal budget deficit and the GrammRudman-Hollings Act increased the demand for estimates of the impact of changes to the tax code.
|
From page 220... ...
Subsequent MERGE files matched the March CPS with tax return records (see Pechman, 1965, 1985; see also Minarik, 1980~. The Treasury Department in the mid-196Os brought tax modeling capability in-house, and the Office of Tax Analysis (OTA)
|
From page 221... ...
Currently used tax policy models fall into the class of cross-sectional microsimulation models that simulate policy effects on a population database at a given time and use static aging techniques to project the database forward in time.35 In general, the models are very elaborate tax liability calculators that incorporate very few explicit behavioral responses. Most models assume that taxpayers will choose whether or not to itemize deductions on the basis of which alternative reduces their tax liability, but other types of behavioral response, to the extent that they are considered, are usually handled outside the model.36 One distinguishing feature of the tax models is their very heavy reliance on information from administrative records, specifically, from the SOI samples of tax returns.
|
From page 222... ...
The OTA/ICT model is built on inflation from the detailed SOI files that have not been modified for public use, with additional variables imputed or matched from the March CPS and other sources. The second category includes tax models that start with the public-use SOI files and impute or match additional information from household surveys such as the March CPS.
|
From page 223... ...
To develop version 11, OTA began with the 1985 SOI sample, containing about 121,000 individual income tax returns, each of which had more than 1,000 data fields. OTA deleted unnecessary fields, created necessary recodes, packed the data to minimize computer storage requirements, and verified that the taxpayer's liability calculated by using the OTA model agreed with the liability reported in the SOI file.
|
From page 224... ...
. to the individual tax model over the years, one shortcoming still remains: the data base relies almost entirely on tax return data Analyzing proposals that could radically alter the tax base, the tax unit, and the tax rates requires information that is not tied to a particular tax law or limited to what is reported on tax returns filed under that tax regime.
|
From page 225... ...
Repeal of the catastrophic health insurance program in 1989 obviated the need for such information at the present time, although Congress may in the future consider a similar type of plan. Finally, a series of imputations was undertaken to provide information to construct the broad concept of family economic income used by OTA in analyzing the distributional effects of proposed tax law changes on income classes of the population.
|
From page 226... ...
Issues in Modeling Tax Policies Clearly, the use of SOI tax return information in tax policy microsimulation models is beneficial and, indeed, essential for detailed simulation of the revenue consequences of proposed changes to the tax code. The SOI files provide documented sets of income amounts, deductions, and other tax-related variables for large samples of actual filing units and thereby portray all of the detail of the current tax code.
|
From page 227... ...
However, reports of income from odd jobs and cash transactions may be better, or at least no worse, in surveys than on tax returns. As noted above, OTA, as part of creating its tax model database, adjusts the March CPS income amounts to national targets.
|
From page 228... ...
One way to assess and improve the quality of tax modeling databases would be to conduct exact matches, based on social security numbers, of household survey records from the March CPS or SIPP with tax return data from the full IRS files. Confidentiality restrictions may well preclude access to such a matched file, but the Statistics of Income Division and the Census Bureau could explore the possibility of conducting exact matches for use solely in evaluating and enhancing the quality of the statistical matches and imputations that are currently done to construct tax policy analysis databases.
|
From page 229... ...
Data from panel surveys that follow people over time are also needed for development of good estimates of behavioral responses to such changes as the tax treatment of capital gains. Another important area of research concerns ways to narrow the range of parameter estimates and address other technical considerations in developing and implementing behavioral response functions in microsimulation models.
|
From page 230... ...
We encourage a broad range of policy analysis agencies to work together to make the needed improvements in microsimulation models.
|
Key Terms
This material may be derived from roughly machine-read images, and so is provided only to facilitate research.
More
information on Chapter Skim is available.