TABLE 5–2 Price Elasticity of Demand for Health Care: Selected Studies (c) 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated,

(c) 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use

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TABLE 5–2Price Elasticity of Demand for Health Care: Selected Studies

Dependent variable Study Elasticity Country

Medical expenditures Eichner (1998)Newhouse and the InsuranceExperiment Group (1993)Phelps and Newhouse (1974) Rosett and Huang (1973) Van Vliet (2001)

-0.62 to -0.75

-0.17 to -0.22-0.04 to -0.12 -0.35 to -1.5 -0.079

United States

United StatesUnited StatesUnited StatesNetherlands

Hospital CareAdmissionsHospital InpatientHospital Outpatient

Manning et al. (1987)Davis and Russell (1972)Davis and Russell (1972)Bhattacharya et al. (1996)

-0.1 to -0.2-0.32 to -0.46-1.0-0.12 to -0.54

United StatesUnited StatesUnited StatesJapan

Patient Days Feldman and Dowd (1986) -0.74 to -0.80 United States

Physician Visits Cockx and Brasseur (2003) -0.13 to -0.03 Belgium

Total and Elective surgery

Cromwell and Mitchell (1986) -0.14 and -0.17 United States

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TABLE 5–2Price Elasticity of Demand for Health Care: Selected Studies

Dependent variable Study Elasticity Country

Nursing home careProbability of entering a nursing homeNumber of patientsPatient daysNumber of patients

Headen (1993)

Nyman (1989)Lamberton et al. (1986)Chiswick (1976)

-0.7

-1.7-0.76-2.3

United States

United StatesUnited StatesUnited States

Dental Services Manning and Phelps (1979)Mueller and Monheit (1988)

-0.5 to -0.7-0.18

United StatesUnited States

Prescription DrugsNumberExpenditures

Smith (1993)Contoyannis et al. (2005)

-.10-0.12 to -0.16

United StatesCanada

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The Impact of Insurance on the Demand for Medical Care

• RAND Health Insurance Study (HIS) (Manning et al., 1987)– Controlled experiment– Families from six sites– Various types of health insurance plans– Test: impact of differences in insurance

coverage on the demand for medical care

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4

The Impact of Insurance on the Demand for Medical Care

• Results– As the level of coinsurance rises, or the out-of-

pocket price of medical care increases• Consumers demand less medical care

– Consumers reduce medical expenditures largely by cutting back on the number of visits to health care providers and not on the amount spent on each visit

– As the level of coinsurance increased• The probability of using any medical services, along

with total medical expenditures, diminished

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The Impact of Insurance on the Demand for Medical Care

• Results– Negative impact of deductibles on the

consumption of medical care– Own-price elasticity of demand is sensitive to

the level of insurance• As the level of coinsurance drops, consumers

become less sensitive to price changes due to lower out-of-pocket payments

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TABLE 5–3Sample Means for Annual Use of Medical Care per Capita

Plan*Face-to-FaceVisits

OutpatientExpenses(1984 $)

InpatientDollars(1984 $)

TotalExpenses(1984 $)

Probabilityof Using AnyMedicalServices

Free25%50%95%Individual deductible

4.553.333.032.733.02

$340260224203235

$409373450315373

$749634674518608

86.878.877.267.772.3