Working Paper: NBER ID: w18642
Authors: Aviva Arondine; Liran Einav; Amy Finkelstein
Abstract: We re-present and re-examine the analysis from the famous RAND Health Insurance Experiment from the 1970s on the impact of consumer cost sharing in health insurance on medical spending. We begin by summarizing the experiment and its core findings in a manner that would be standard in the current age. We then examine potential threats to the validity of a causal interpretation of the experimental treatment effects stemming from different study participation and differential reporting of outcomes across treatment arms. Finally, we re-consider the famous RAND estimate that the elasticity of medical spending with respect to its out-of-pocket price is -0.2, emphasizing the challenges associated with summarizing the experimental treatment effects from non-linear health insurance contracts using a single price elasticity.
Keywords: Health Insurance; Consumer Cost Sharing; Medical Spending; Elasticity
JEL Codes: I13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| differential participation and reporting biases (C83) | interpretation of elasticity estimates (C51) |
| out-of-pocket prices (P22) | medical spending (H51) |
| higher cost-sharing plans (G52) | medical spending (H51) |
| medical episodes severity (I12) | response to cost sharing (D16) |