DEMAND RESPONSE TO COST SHARING UNDER MANAGED HEALTH CARE

Chunling Lu, Richard G. Frank and Thomas G. McGuire

Contemporary Economic Policy, 2009, vol. 27, issue 1, 1-15

Abstract: We use 1996 Medical Expenditure Panel Survey to examine the demand response of ambulatory medical services to demand‐side cost sharing under managed health care and find that demand response to a coinsurance rate is less than that under conventional plans. To address the selection problem, only respondents who were offered a single insurance plan from private establishments are studied. Our results show that managed care, relying on different approaches to ration, has blunted demand response. This suggests that in a managed care context, increasing demand‐side cost sharing will reduce costs to plans mainly by shifting costs to enrollees. (JEL I11)

Date: 2009
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