The Demand for Medical Care Services

A Retrospect and Prospect

by Joseph P. Newhouse

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Surveys the literature on demand for medical care services and conjectures where the literature may go next. Although focus is on the response of demand to changes in cost sharing arrangements, several other determinants of demand are treated. Previous studies have used four sources of data: premium or claims information, natural experiments, comparison of demand of individuals with different insurance policies, and designed experiments. The advantages and drawbacks of using each of these sources are examined. Several frontiers of demand analysis are also discussed: specification of price, income, and health status variables; specification of the stochastic term and use of appropriate estimators; specification of the dependent variable; and the norms argument. The author concludes that whereas both conceptual and empirical knowledge are now much improved, the theory of both price and utilization at the market level is in need of further study.

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