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Young Economist

From the March/April 2007 Issue

Kate Bundorf is a doctor with an unusual patient: America’s healthcare economy.

Kate BundorfEconomists often struggle to interest the public in their work—but healthcare is a special case. “Most people feel differently about it,” says M. Kate Bundorf. “You don’t care whether poor people have TiVo or not, but you care a lot whether poor people have access to healthcare.” Despite its importance, the field still has plenty of unanswered questions—an ideal opening for Bundorf’s talents.

A child of suburban Detroit, Bundorf arrived for college at the University of Michigan already interested in medicine. Turned off by what she calls the “blood and guts” of clinical training, she majored in business instead, and then put her training to work at a pharmaceutical consulting firm. A few years later, looking to advance her career, she started a dual master’s degree program in business and public health at the University of California, Berkeley. But after sitting in on some Ph.D.-level health economics classes, Bundorf discovered that she had the academic research bug. She went on to receive her doctorate in managerial science and applied economics from the University of Pennsylvania’s Wharton School.

Today, at age 39, she is right where she wants to be—working as a health economist and assistant professor of health research and policy at the Stanford University School of Medicine. She’s one of just a handful of economists at the med school. The students in the primary course she teaches, on the political economy of healthcare, are a mixture of MDs and MBAs in training.

She likes working at a medical school. “It makes you more connected,” she says, “to the clinical side of research and more aware of how clinicians think about these problems, which is often quite different from how economists think about them.” According to Bundorf, the MBA students generally tend to be more optimistic about the prospects of new technologies and policy options. They believe that electronic medical records, new business models, and private-sector efficiency will prompt fundamental changes for the better in healthcare. Physicians in her classes, Bundorf says, “tend to be a little more wary,” mindful of the ways great ideas can come apart when put into practice.

After sitting in on some Ph.D.-level health economics classes, Bundorf discovered that she had the academic research bug.

Her research ranges from macro questions about the structure of the insurance market to more personal ones, such as whether women who could potentially conceive without medical intervention end up overusing fertility treatments when those treatments are made inexpensive by legislative mandate.

One recent inquiry: Who pays the added costs associated with high rates of obesity? Most health insurance in America is purchased by employers, who negotiate a single rate to cover all of their employees. That might imply the employers (along with their slimmer workers) subsidize health expenditures on the obese. But Bundorf found otherwise. In the working paper “Incidence of the Healthcare Costs of Obesity,” published last year by the National Bureau of Economic Research, Bundorf and co-author Jay Bhattacharya, also a health economist at Stanford, compared the wages of obese and non-obese workers, taking into account whether or not the subjects had employer-sponsored health insurance.

They found that non-obese workers earn higher cash wages than their obese colleagues—but only in workplaces that offer health coverage. They concluded that employers are likely to be offering lower cash wages to obese workers to compensate for the higher cost of insuring them. In other words, the cost of being overweight is borne by the employee rather than the employer.

Another area of interest to Bundorf is the way Americans use the Internet to search for health information. Many experts have worried that a “digital divide” might limit access to online health information only to the economically comfortable and technologically savvy. But Bundorf and her colleagues found the opposite: uninsured people, who cannot easily take their health questions to a doctor, composed the group that relied most on the Internet for health guidance. The study, says Bundorf, “implies that people without health insurance are substituting information on the Internet for physician visits. The concern related to that is, are they getting the right information? It can go either way.”

Much of Bundorf’s work concerns the healthcare sector as a whole. Economics, she hopes, can point the way to policies that “keep the innovation that makes healthcare high-quality in the U.S. but control utilization of things that are high cost and that are potentially less valuable…. We need some sort of system to use these technologies efficiently—which I don’t think we really have yet.” Meanwhile, she wants to find a way to promote more use “of things that are low cost but have big effects on your health.”

In practical terms, greater efficiency might mean encouraging vaccines and preventive care, while restricting insurance coverage for some of the most expensive and advanced medical treatments. “At some point we’re going to have to make choices. Do we want to take these people who can’t afford it and somehow give it to them, or do we want to constrain the dissemination of new technologies?” asks Bundorf. “The issues of distribution, I think, are going to become increasingly important for the future.”

Bundorf and Mark Pauly, the health economist at Wharton who was her thesis adviser, found that as much as three-quarters of the uninsured population may be able to afford its own insurance.

One economically smart policy option that has been gaining traction in the last few years is “consumer-driven” healthcare, which channels health money into the hands of patients and then requires them to make correspondingly higher copayments. The economic principle is that a system of low copays, in which most of the cost is detached from how much care the patient uses, has encouraged patients to consume more care than they actually need. With higher fees, coming from their own pockets, patients will be less likely to over-consume care—and the system as a whole will function more efficiently.

“She has a good touch for identifying what are interesting and important questions,” says Mark Pauly, the health economist at Wharton who was Bundorf’s thesis adviser. One of those questions was so fascinating that he worked with her to answer it: How many of America’s uninsured could afford to buy coverage if they wanted to? The research, published last year in the Journal of Health Economics, found that as much as three-quarters of the uninsured population may be able to afford its own insurance. Even under the grimmest assumptions, one-quarter of the uninsured can already afford to buy coverage.

The findings add political steam to proposals modeled on the Massachusetts state healthcare plan, which requires all residents to buy health coverage just as all drivers are required to insure their cars. “She has a strong interest in not just doing research, but using it to influence policy,” says Pauly. “And, heaven knows, policy makers need some influence in this area, so I think she’ll have some impact.”

By moving from the private sector to the academy, Bundorf says, she gained the luxury of being able to take the long view. “I always compare it to my husband, who is in business,” she says, referring to Shan Phillips, a consultant who helps telecom firms with Asia-related business development. “His job is to find the best answer right now. My job is to find the best answer. And it takes a little longer to find the best answer.”

Photograph by Fran Collin

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