Elsevier

Journal of Health Economics

Volume 7, Issue 4, December 1988, Pages 337-367
Journal of Health Economics

The demand for episodes of treatment in the health insurance experiment

https://doi.org/10.1016/0167-6296(88)90020-3Get rights and content

Abstract

This paper analyzes claims data from the RAND Health Insurance Experiment, which were grouped into episodes of treatment. The insurance plans in the experiment have coinsurance and a cap on out-of-pocket spending. Using new statistical techniques to adjust for the increased sickliness of those who exceed the cap, the effects of coinsurance on cost per episode and number of episodes are estimated. Cost sharing reduced the number of episodes but had little effect on cost per episode. People in the experiment responded myopically as their current insurance status changed through the year. The price elasticity of spending was about -0.2 throughout the range of coinsurance studied. When data permit it, the study of episodes complements analyses of annual medical spending by revealing more about how decisions to spend are made within the year.

References (36)

  • Betsy R. Foxman et al.

    The effect of free care on the use of antibiotics: Results from a population-based randomized controlled trial

    Journal of Chronic Disease

    (1987)
  • Joseph P. Newhouse et al.

    On having your cake and eating it too: Econometric problems in estimating the demand for health services

    Journal of Econometrics

    (1980)
  • Kenneth J. Arrow

    The economics of moral hazard: Further comment

    American Economic Review

    (1968)
  • Robert H. Brook et al.

    The effect of coinsurance on the health of adults

  • Randall P. Ellis

    Rational behavior in the presence of coverage ceilings and deductibles

    RAND Journal of Economics

    (1986)
  • Stephen E. Fienberg et al.

    Large-scale social experimentation in the United States

  • Mark C. Hornbrook et al.

    Health care episodes: Definition, measurement and use

    Medical Care Review

    (1985)
  • Peter J. Huber

    The behavior of maximum likelihood estimates under nonstandard conditions

    Fifth Berkeley Symposium on Mathematical Statistics and Probability

    (1967)
  • Emmett B. Keeler et al.

    How cost sharing reduced medical spending of participants in the Health Insurance Experiment

    Journal of the American Medical Association

    (1983)
  • Emmett B. Keeler et al.

    Deductibles and the demand for medical care services: The theory of a consumer facing a variable price schedule under uncertainty

    Econometrica

    (1977)
  • Emmett B. Keeler et al.

    The demand for episodes of medical treatment in the Health Insurance Experment

  • Emmett B. Keeler et al.

    The demand for episodes of mental health services

  • Emmett B. Keeler et al.

    How free care reduced hypertension of participants in the RAND Health Insurance Experiment

    Journal of the American Medical Association

    (1985)
  • Emmett B. Keeler et al.

    The demand for episodes of medical services: Interim results from the Health Insurance Experiment

  • Joan Keesey et al.

    The episodes of illness processing system

  • S.James Kilpatrick

    An empirical study of the distribution of episodes of illness recorded in the 1970–1971 National Morbidity Survey

    Applied Statistics

    (1977)
  • Kathleen N. Lohr et al.

    Quality of care in the New Mexico Medicaid Program: The effect of the New Mexico Experimental Medical Care Review Organization on the use of antibiotics for common infectious diseases

    Medical Care Supplement

    (1980)
  • Kathleen N. Lohr et al.

    Use of medical care in the RAND Health Insurance Experiment: Diagnosis- and service-specific analyses

    Medical Care

    (1986)
  • Cited by (143)

    • Impact of urban-rural health insurance integration on health care: Evidence from rural China

      2020, China Economic Review
      Citation Excerpt :

      The main outcome variables pertain to individuals' health care utilization. Following the extant literature on the determinants of health care utilization in China using the CHARLS survey (Gong, Kendig, & He, 2016; Li & Zhang, 2013; Mu, 2014; Wu & Li, 2014; Zhang et al., 2017) and those in the US based on the RAND experiment (Keeler & Rolph, 1988; Manning, Newhouse, Duan, Keeler, & Leibowitz, 1987), we measure inpatient and outpatient care utilization by actual use: whether the individual received any inpatient care last year or whether the individual had any outpatient visit last month, respectively. To test underlying mechanisms, we also examine whether the care was received in higher-level facilities (e.g., general hospitals, specialized hospitals, and Chinese medicine hospitals) or lower-level facilities (e.g., township hospitals, Village Clinics, or Healthcare Posts) and how the city-level reimbursement rate changes after integration.

    View all citing articles on Scopus

    This work was financed by a Grant no. 016B90 from the Department of Health and Human Services. We are indebted to Shan Cretin, Willard Manning, Joseph Newhouse, and two anonymous referees for helpful comments, and to Joan Buchanan, Janet Hanley, Joan Keesey, and David Reboussin for data processing and analysis.

    View full text