Health Insurance and the Demand for Medical Care

Evidence from a Randomized Experiment

Published in: American Economic Review, v. 77, no. 3, June 1987, p. 251-277

Posted on RAND.org on January 01, 1987

by Willard G. Manning, Joseph P. Newhouse, Naihua Duan, Emmett B. Keeler, Arleen Leibowitz, M. Susan Marquis

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The authors estimate how cost sharing, the portion of the bill the patient pays, affects the demand for medical services. The data come from a randomized experiment. A catastrophic insurance plan reduces expenditures 31 percent relative to zero out-of-pocket price. The price elasticity is approximately -0.2. The authors reject the hypothesis that less favorable coverage of outpatient services increases total expenditure (for example, by deterring preventive care or inducing hospitalization).

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