Demand for Health Insurance

A Theoretical and Empirical Investigation

by Charles E. Phelps

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Develops a theory of demand for reimbursement health insurance that incorporates the effects of the insurance on demand for medical care. This theory applies to insurance with a limited number of parameters available for consumer choice (a coinsurance rate and a maximum payment). Household interview data from a 1963 survey are used to study actual insurance parameters chosen by the sampled families. Demand for reimbursement insurance is also estimated from aggregated (annual) time series data, where the variable studied is average coverage level of the population. Key results of the studies show that the estimated income elasticity for insurance is .2 to .4 and that estimated own-price elasticity is -.25 to -1.1, depending on the type of insurance.

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