Working Paper: NBER ID: w15085
Authors: Amanda E. Kowalski
Abstract: The extent to which consumers respond to marginal prices for medical care is important for policy. Using recent data and a new censored quantile instrumental variable (CQIV) estimator, I estimate the price elasticity of expenditure on medical care. The CQIV estimator allows the estimates to vary across the skewed expenditure distribution, it allows for censoring at zero expenditure nonparametrically, and it allows for the insurance-induced endogenous relationship between price and expenditure. For identification, I rely on cost sharing provisions that generate marginal price differences between individuals who have injured family members and individuals who do not. I estimate the price elasticity of expenditure on medical care to be stable at -2.3 across the .65 to .95 conditional quantiles of the expenditure distribution. These quantile estimates are an order of magnitude larger than previous mean estimates. I consider several explanations for why price responsiveness is larger than previous estimates would suggest.
Keywords: price elasticity; medical care; expenditure; instrumental variable
JEL Codes: I1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| marginal price (D41) | medical expenditure (H51) |
| family member's injury (J28) | marginal price (D41) |
| family member's injury (J28) | medical expenditure (H51) |
| price changes (P22) | medical expenditure (H51) |