Indiana University Details Findings in Public Economics (Intertemporal substitution in health care demand: Evidence from the RAND Health Insurance Experiment)

Politics & Government Daily

2019 AUG 19 (NewsRx) -- By a News Reporter-Staff News Editor at Politics, Law & Government Daily -- Fresh data on Economics - Public Economics are presented in a new report. According to news reporting originating from Bloomington, United States, by NewsRx correspondents, research stated, “Nonlinear cost-sharing in health insurance encourages intertemporal substitution because patients can reduce their out-of-pocket costs by concentrating spending in years when they hit the deductible. We develop a test for intertemporal substitution and apply it to data from the RAND Health Insurance Experiment, where people were randomly assigned either to a free care plan or to a cost-sharing plan which had coinsurance up to a maximum dollar expenditure (MDE).”

Our news editors obtained a quote from the research from Indiana University, “Hitting the MDE-leading to an effective price of zero-has a bigger effect on health care demand than does being in free care, because people who hit the MDE face low current prices but high future prices, and so stock up on health care. As a result, short-lasting price changes induce nearly twice as big a response as do long-lasting changes. These findings help reconcile disparate estimates of the price elasticity of demand for health care in the existing literature.”

According to the news editors, the research concluded: “Failing to account for intertemporal substitution can lead researchers to overstate cost savings from high deductible health plans by 20% or more.”

For more information on this research see: Intertemporal substitution in health care demand: Evidence from the RAND Health Insurance Experiment. Journal of Public Economics, 2019;175():29-43. Journal of Public Economics can be contacted at: Elsevier Science Sa, PO Box 564, 1001 Lausanne, Switzerland. (Elsevier - www.elsevier.com; Journal of Public Economics - http://www.journals.elsevier.com/journal-of-public-economics/)

The news editors report that additional information may be obtained by contacting D.W. Sacks, Indiana University, Kelley School of Business, Bloomington, IN 47405, United States.

The direct object identifier (DOI) for that additional information is: https://doi.org/10.1016/j.jpubeco.2019.04.006. This DOI is a link to an online electronic document that is either free or for purchase, and can be your direct source for a journal article and its citation.