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
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).