Dec 31, 1981
This report examines the effects of varying levels of cost sharing on the demand for medical care and other health services. It presents the final results of the RAND Health Insurance Experiment (HIE) with respect to annual utilization of medical services in the fee-for-service system. The data from the HIE clearly show that the use of medical services responds to changes in the amount paid out of pocket. The per capita expenses on the plan with no out-of-pocket costs are 45 percent higher than those on the plan with a 95 percent coinsurance rate, subject to an upper limit on out-of-pocket expenses of $1,000 per year. The largest decreases in the use of outpatient services occur between the free and 25 percent coinsurance plans. Cost sharing affects the number of medical contacts, but not the intensity of those contacts. There are no significant differences among the family coinsurance plans in the use of inpatient services, including use of inpatient services by children. The findings indicate that demand elasticities for medical care are nonzero and that the response to cost sharing is nontrivial.