Mastering ’Metrics: The Path from Cause to Effect

1 Chapter 1 Randomized TrialsKwai Chang Caine:What happens in a man s life is alreadywritten. A man must move through life as his destiny man:Yet each is free to live as he chooses. Though they seemopposite, both are Fu,PilotOur PathOur path begins with experimentalrandom assignment,both as a framework for causal questions and a bench-mark by which the results from other methods arejudged. We illustrate the awesome power of random assign-ment through two randomized evaluations of the effects ofhealth insurance. The appendix to this chapter also uses theexperimental framework to review the concepts and methodsof statistical In Sickness and in Health (Insurance)The Affordable Care Act (ACA) has proven to be one of themost controversial and interesting policy innovations we veseen.

2 The ACA requires Americans to buy health insurance,with a tax penalty for those who don t voluntarily buy in. Thequestion of the proper role of government in the market forhealth care has many angles. One is the causal Effect of healthinsurance on health. The United States spends more of its GDPon health care than do other developed nations, yet Americansare surprisingly unhealthy. For example, Americans are morelikely to be overweight and die sooner than their Canadiancousins, who spend only about two-thirds as much on care. Copyright, Princeton University Press. No part of this book may be distributed, posted, or reproduced in any form by digital or mechanical means without prior written permission of the publisher.

3 For general queries, contact Chapter 1 America is also unusual among developed countries in havingno universal health insurance scheme. Perhaps there s a causalconnection Americans are covered by a federal program calledMedicare, while some poor Americans (including most singlemothers, their children, and many other poor children) arecovered by Medicaid. Many of the working, prime-age poor,however, have long been uninsured. In fact, many uninsuredAmericans have chosen not to participate in an employer-provided insurance workers, perhaps correctly,count on hospital emergency departments, which cannot turnthem away, to address their health-care needs.

4 But the emer-gency department might not be the best place to treat, say,the flu, or to manage chronic conditions like diabetes andhypertension that are so pervasive among poor Americans. Theemergency department is not required to provide long-termcare. It therefore stands to reason that government-mandatedhealth insurance might yield a health dividend. The push forsubsidized universal health insurance stems in part from thebelief that it paribusquestion in this context contrasts thehealth of someone with insurance coverage to the health ofthe same person were they without insurance (other than anemergency department backstop).

5 This contrast highlights afundamental empirical conundrum: people are either insuredor not. We don t get to see them both ways, at least not at thesame time in exactly the same his celebrated poem, The Road Not Taken, RobertFrost used the metaphor of a crossroads to describe the causaleffects of personal choice:Two roads diverged in a yellow wood,And sorry I could not travel bothAnd be one traveler, long I stoodAnd looked down one as far as I couldTo where it bent in the undergrowth;1 For more on this surprising fact, see Jonathan Gruber, Covering theUninsured in the United States, Journal of Economic Literature, vol.

6 46,no. 3, September 2008, pages 571 606. Copyright, Princeton University Press. No part of this book may be distributed, posted, or reproduced in any form by digital or mechanical means without prior written permission of the publisher. For general queries, contact Trials 3 Frost s traveler concludes:Two roads diverged in a wood, and I I took the one less traveled by,And that has made all the traveler claims his choice has mattered, but, being onlyone person, he can t be sure. A later trip or a report by othertravelers won t nail it down for him, either. Our narrator mightbe older and wiser the second time around, while other trav-elers might have different experiences on the same road.

7 So itis with any choice, including those related to health insurance:would uninsured men with heart disease be disease-free if theyhad insurance? In the novelLight Years,James Salter s irreso-lute narrator observes: Acts demolish their alternatives, thatis the paradox. We can t know what lies at the end of the roadnot can t know, but evidence can be brought to bear on thequestion. This chapter takes you through some of the evidencerelated to paths involving health insurance. The starting pointis the National Health Interview Survey (NHIS), an annualsurvey of the population with detailed information onhealth and health insurance.

8 Among many other things, theNHIS asks: Would you say your health in general is excellent,very good, good, fair, or poor? We used this question to codean index that assigns 5 to excellent health and 1 to poor healthin a sample of married 2009 NHIS respondents who may ormay not be index is ouroutcome:a measurewe re interested in studying. The causal relation of interesthere is determined by a variable that indicates coverage byprivate health insurance. We call this variable thetreatment,borrowing from the literature on medical trials, although thetreatments we re interested in need not be medical treatmentslike drugs or surgery.

9 In this context, those with insurance canbe thought of as thetreatment group;those without insurancemake up thecomparisonorcontrol good controlgroup reveals the fate of the treated in a counterfactual worldwhere they are not sample is aged 26 59 and therefore does not yet qualify for Medicare. Copyright, Princeton University Press. No part of this book may be distributed, posted, or reproduced in any form by digital or mechanical means without prior written permission of the publisher. For general queries, contact Chapter 1 The first row of Table compares the average health indexof insured and uninsured Americans, with statistics tabulatedseparately for husbands and with health insur-ance are indeed healthier than those without, a gap of in the index for men and.

10 4 in the index for women. Theseare large differences when measured against the standard de-viation of the health index, which is about 1. (Standard de-viations, reported in square brackets in Table , measurevariability in data. The chapter appendix reviews the relevantformula.) These large gaps might be the health dividend we relooking and Fruitful ComparisonsSimple comparisons, such as those at the top of Table , areoften cited as evidence of causal effects. More often than not,however, such comparisons are misleading. Once again theproblem isother things equal,or lack thereof.