Cover: The Elasticity of Demand for Health Care

The Elasticity of Demand for Health Care

A Review of the Literature and Its Application to the Military Health System

Published Apr 29, 2002

by Jeanne S. Ringel, Susan D. Hosek, Ben A. Vollaard, Sergej Mahnovski


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This report reviews the economic literature on the elasticity of demand for health care to provide a framework for understanding the effects of changes in the Military Health System benefit structure on the demand for healthcare services paid for by the DoD. Despite the wide variety of empirical methods and data sources used in the literature, the demand for health care is consistently found to be price inelastic, with values centering around -0.17. The demand for some specific medical services such as preventive care or pharmacy, however, is found to be more price sensitive with values around -0.30. Changes in the price of health care affect health plan enrollment choices as well as the demand for services. Studies show that consumers may be induced to switch between insurance plans in response to changes in their relative prices. The report concludes with a discussion of the potential effects of four aspects of the FY2001 National Defense Authorization Act.

The research described in this report was performed under the auspices of RAND's National Security Research Division unit.

This report is part of the RAND monograph report series. The monograph/report was a product of RAND from 1993 to 2003. RAND monograph/reports presented major research findings that addressed the challenges facing the public and private sectors. They included executive summaries, technical documentation, and synthesis pieces.

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