1、Standard economic demand curves are downward slopingAs price(P)decreases,quantity(Q)demanded increasesExample:P=$3,Q=4 lollipopsP=$1,Q=8 lollipopsP=$0.50,Q=9 lollipops Elasticity measures the degree of downward-sloping Elastic demand DE price sensitive:changes in price greatly affect the quantity de
2、mandedInelastic demand DIPrice insensitive:changes in price do not significantly change the quantity demandedDoes the demand curve for health care slope downward?Are people sensitive to the price of health care?Is demand for vaccines such thatP=$100,Q=1,000P=$1,Q=1,000i.e.demand is inelastic?Is dema
3、nd for band-aids such thatP=$100,Q=1P=$1,Q=30i.e.demand is elastic?If people always obey their doctors,then demand should be inelastic!Need randomized experiments Randomized experiments:Definition:a study that assigns treatments randomly to different groups of study participantsIncludes:A control gr
4、oup(no treatment)Placebo groupHelps generate experimental groups that are statistically similar to each otherNon-randomized experiments can be biasedMeasured demand curve DM is biased compared to true demand DTPeople generally choose the amount of insurance they receiveSicker people will choose more
5、 insurance because they know they will need more careEvidence from Randomized ExperimentsTwo Randomized ExperimentsRAND Health Insurance Experiment(HIE)Oregon Medicaid ExperimentRAND HIERandomly assigned 2,000 families from six US cities to different insurance coverage plansCopayments groups:Free,25
6、%,50%,and 95%Tracked utilization of health care(Q)in each copayment plan(P)Copayment acts as the marginal cost that each family faces when buying careOregon Medicaid ExperimentCompared two groups of low-income adultsMedicaid lottery winners vs.lottery losersLottery winners got to apply for public he
7、alth insurance through Medicaid So they faced lower out-of-pocket prices for careLottery losers could not get Medicaid(but might have purchased outside insurance)Results?Health care demand curves are downward sloping(economic theory prevails!)Price changes affected demand for health careDifferent me
8、asures of careOutpatient CareDef:any medical care that does not involve an overnight hospital stayE.g.runny noses,twisted ankles,minor broken bonesInpatient CareDef:medical care requiring overnight staysE.g.More serious surgeries or conditions that require overnight recovery or monitoringER CareDef:
9、care involving the emergency roomE.g.heart attacks,strokes Outpatient careRAND HIEAs patient cost-sharing(P)increases,number of episodes(Q)of outpatient care decreasesHolds for both acute and chronic conditionsData from Keeler et al.(1988)Outpatient careOregon Medicaid StudyLottery winners have more
10、 outpatient visits than lottery losersBoth the RAND HIE and the Oregon Medicaid Study find downward-sloping demand for outpatient care!Inpatient careRAND HIE Oregon Medicaid StudyNo significant difference in usage rates between lottery winners and lottery losersDemand is still downward-sloping but l
11、ess elastic than demand for outpatient care(Data from Keeler,1988)ER careRAND HIEOregon Medicaid StudyNo significant difference in ER care for lottery winners vs.lottery losersEven for emergency room care likely the most urgent kind those on the highest copayment plan in the RAND HIE were less likel
12、y to buy care!(Data from Newhouse,1993)Pediatric carePediatric careDef:care for infants or children usually paid for by a parent or guardianData from RAND HIE:Mental health&dental Care(RAND HIE)Prescription drugsData from RAND HIENon-randomized experiment evidenceU.S.MedicareCitizens are eligible fo
13、r health insurance through Medicare when they turn 65 but not beforeIf demand for health care is downward-sloping,we expect a jump in health care usage at age 65This is known as a discontinuity studyThere is a discontinuity in health insurance at age 65Card et al.(2009)Card et al.have two main findi
14、ngs:Unplanned emergency department admissions follow a linear trend around the age of 65Other hospital admissions jump up at the age of 65There is a discontinuity in medical usage at the same point of discontinuity in Medicare coverage!This is further evidence that demand for health care is sensitiv
15、e to priceComparing demand curves How can we determine which type of demand is more price sensitive?Data from Keeler et al.(1988)Arc Elasticity Need a measure to compare the relative price sensitivity of different goodsSo the measure needs to be unitless(how else would we compare ER visits to sticks
16、 of gum?)Arc Elasticity:Health care has inelastic demandDoes price for care affect health?Mortality ratesRAND HIE:no difference between treatment groups*10%difference of mortality rate between high-risk participants on free and cost-sharing plans(people on free plan less likely to die)Oregon Medicai
17、d:no difference between lottery winners and losersDoes the price of care affect health?Does price for care affect health?RAND HIE:Generally,no health differences between people on free plan vs.cost-sharing!*Only statistically significant difference between plans were in blood pressure,myopia,&presby
18、opiaDoes price for care affect health?Oregon Medicaid ExperimentLottery winners self-reported better overall health,more healthy days,and lower rates of depressionDiscrepancy with RAND HIE may be because Oregon Medicaid Study worked with the very low-income,while RAND HIE studied a broader cross-sec
19、tion of the U.S.ConclusionDemand curves for health care are downward slopingQuantity of care demanded is sensitive to price(though not as sensitive as other demands,e.g.for movies)BUT generally,price of health care does not seem to affect ones healthException is that price seems to affect the most vulnerable segments of the population(low-income,high blood pressure,etc.)Policy and health insurance implications?
