 Intertemporal substitution in health care demand: Evidence from the RAND Health Insurance ExperimentHaizhen Lin and Daniel W. Sacks Journal of Public Economics, 2019, vol. 175, issue C, 29-43 Abstract: 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). 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. Failing to account for intertemporal substitution can lead researchers to overstate cost savings from high deductible health plans by 20% or more. Keywords: Health insurance; Intertemporal substitution; Moral hazard; Dynamic incentives (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:175:y:2019:i:c:p:29-43 DOI: 10.1016/j.jpubeco.2019.04.006 Access Statistics for this article Journal of Public Economics is currently edited by R. Boadway and J. Poterba More articles in Journal of Public Economics from Elsevier |
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