Price and Income Elasticities for Medical Care Services

Joseph Newhouse and Charles E. Phelps
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Charles E. Phelps: Rand Corporation

Chapter 9 in The Economics of Health and Medical Care, 1974, pp 139-161 from Palgrave Macmillan

Abstract: Abstract This paper develops a framework for estimating demand for medical care, expanding Grossman’s ‘investment model’ in three significant ways: multiple medical inputs are allowed in production of health, reimbursement insurance is introduced (altering the net price of care) and choice of different ‘styles’ of care is allowed. Demand curves are estimated from 1963 United States household survey data, with the analysis limited to those with positive observed quantities of service. Use of explicit parameters from insurance policies to defined net price is a unique empirical aspect of the paper. Price elasticities of demand for hospital, physician office and hospital outpatient services are found to be small, all lying below 0·2 in absolute value. Wage income elasticities are positive and non-wage income is found to have no effect on demand, both as hypothesized by the model. Insurance coverage is also shown to influence price of services used, as does wage income and the quantity of services demanded.

Keywords: Price Elasticity; Income Elasticity; Rand Corporation; Wage Income; Budget Share (search for similar items in EconPapers)
Date: 1974
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DOI: 10.1007/978-1-349-63660-0_9

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