IDEAS home Printed from https://ideas.repec.org/a/eee/jhecon/v55y2017icp232-243.html
   My bibliography  Save this article

Health care demand elasticities by type of service

Author

Listed:
  • Ellis, Randall P.
  • Martins, Bruno
  • Zhu, Wenjia

Abstract

We estimate within-year price elasticities of demand for detailed health care services using an instrumental variable strategy, in which individual monthly cost shares are instrumented by employer-year-plan-month average cost shares. A specification using backward myopic prices gives more plausible and stable results than using forward myopic prices. Using 171 million person-months spanning 73 employers from 2008 to 2014, we estimate that the overall demand elasticity by backward myopic consumers is −0.44, with higher elasticities of demand for pharmaceuticals (−0.44), specialists visits (−0.32), MRIs (−0.29) and mental health/substance abuse (−0.26), and lower elasticities for prevention visits (−0.02) and emergency rooms (−0.04). Demand response is lower for children, in larger firms, among hourly waged employees, and for sicker people. Overall the method appears promising for estimating elasticities for highly disaggregated services although the approach does not work well on services that are very expensive or persistent.

Suggested Citation

  • Ellis, Randall P. & Martins, Bruno & Zhu, Wenjia, 2017. "Health care demand elasticities by type of service," Journal of Health Economics, Elsevier, vol. 55(C), pages 232-243.
    • Handle: RePEc:eee:jhecon:v:55:y:2017:i:c:p:232-243
    DOI: 10.1016/j.jhealeco.2017.07.007
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0167629616303757
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jhealeco.2017.07.007?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Aviva Aron-Dine & Liran Einav & Amy Finkelstein & Mark Cullen, 2015. "Moral Hazard in Health Insurance: Do Dynamic Incentives Matter?," The Review of Economics and Statistics, MIT Press, vol. 97(4), pages 725-741, October.
    2. Angus Deaton, 2010. "Instruments, Randomization, and Learning about Development," Journal of Economic Literature, American Economic Association, vol. 48(2), pages 424-455, June.
    3. Amanda Kowalski, 2016. "Censored Quantile Instrumental Variable Estimates of the Price Elasticity of Expenditure on Medical Care," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 34(1), pages 107-117, January.
    4. Liran Einav & Amy Finkelstein & Stephen P. Ryan & Paul Schrimpf & Mark R. Cullen, 2013. "Selection on Moral Hazard in Health Insurance," American Economic Review, American Economic Association, vol. 103(1), pages 178-219, February.
    5. Zarek C. Brot-Goldberg & Amitabh Chandra & Benjamin R. Handel & Jonathan T. Kolstad, 2017. "What does a Deductible Do? The Impact of Cost-Sharing on Health Care Prices, Quantities, and Spending Dynamics," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 132(3), pages 1261-1318.
    6. Aviva Aron-Dine & Liran Einav & Amy Finkelstein, 2013. "The RAND Health Insurance Experiment, Three Decades Later," Journal of Economic Perspectives, American Economic Association, vol. 27(1), pages 197-222, Winter.
    7. Manning, Willard G, et al, 1987. "Health Insurance and the Demand for Medical Care: Evidence from a Randomized Experiment," American Economic Review, American Economic Association, vol. 77(3), pages 251-277, June.
    8. Liran Einav & Amy Finkelstein & Paul Schrimpf, 2015. "The Response of Drug Expenditure to Nonlinear Contract Design: Evidence from Medicare Part D," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 130(2), pages 841-899.
    9. Joshua D. Angrist & Jörn-Steffen Pischke, 2009. "Mostly Harmless Econometrics: An Empiricist's Companion," Economics Books, Princeton University Press, edition 1, number 8769.
    10. Randall P. Ellis, 1986. "Rational Behavior in the Presence of Coverage Ceilings and Deductibles," RAND Journal of Economics, The RAND Corporation, vol. 17(2), pages 158-175, Summer.
    11. James J. Heckman & Sergio Urzua & Edward Vytlacil, 2006. "Understanding Instrumental Variables in Models with Essential Heterogeneity," The Review of Economics and Statistics, MIT Press, vol. 88(3), pages 389-432, August.
    12. Eichner, Matthew J, 1998. "The Demand for Medical Care: What People Pay Does Matter," American Economic Review, American Economic Association, vol. 88(2), pages 117-121, May.
    13. John F. Scoggins & Daniel A. Weinberg, 2017. "Healthcare Coinsurance Elasticity Coefficient Estimation Using Monthly Cross‐sectional, Time‐series Claims Data," Health Economics, John Wiley & Sons, Ltd., vol. 26(6), pages 795-801, June.
    14. Duarte, Fabian, 2012. "Price elasticity of expenditure across health care services," Journal of Health Economics, Elsevier, vol. 31(6), pages 824-841.
    15. Liran Einav & Amy Finkelstein & Maria Polyakova, 2018. "Private Provision of Social Insurance: Drug-Specific Price Elasticities and Cost Sharing in Medicare Part D," American Economic Journal: Economic Policy, American Economic Association, vol. 10(3), pages 122-153, August.
    16. Parente, Paulo M.D.C. & Santos Silva, J.M.C., 2012. "A cautionary note on tests of overidentifying restrictions," Economics Letters, Elsevier, vol. 115(2), pages 314-317.
    17. Keeler, Emmett B. & Rolph, John E., 1988. "The demand for episodes of treatment in the health insurance experiment," Journal of Health Economics, Elsevier, vol. 7(4), pages 337-367, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Courtemanche, Charles & Friedson, Andrew & Koller, Andrew P. & Rees, Daniel I., 2019. "The affordable care act and ambulance response times," Journal of Health Economics, Elsevier, vol. 67(C).
    2. Bruno Martins & Luís Filipe, 2020. "Doctors' response to queues: Evidence from a Portuguese emergency department," Health Economics, John Wiley & Sons, Ltd., vol. 29(2), pages 123-137, February.
    3. Maysam Rabbani, 2021. "Non-profit hospital mergers: the effect on healthcare costs and utilization," International Journal of Health Economics and Management, Springer, vol. 21(4), pages 427-455, December.
    4. Ackley, Calvin A., 2022. "Tiered cost sharing and health care demand," Journal of Health Economics, Elsevier, vol. 85(C).
    5. Giampiero Marra & Rosalba Radice & David Zimmer, 2021. "Did the ACA's “guaranteed issue” provision cause adverse selection into nongroup insurance? Analysis using a copula‐based hurdle model," Health Economics, John Wiley & Sons, Ltd., vol. 30(9), pages 2246-2263, September.
    6. Natalia Serna, 2021. "Cost sharing and the demand for health services in a regulated market," Health Economics, John Wiley & Sons, Ltd., vol. 30(6), pages 1259-1275, June.
    7. Maclean, Johanna Catherine & Tello-Trillo, Sebastian & Webber, Douglas, 2023. "Losing insurance and psychiatric hospitalizations," Journal of Economic Behavior & Organization, Elsevier, vol. 205(C), pages 508-527.
    8. Kurt Lavetti & Thomas DeLeire & Nicolas R. Ziebarth, 2023. "How do low‐income enrollees in the Affordable Care Act marketplaces respond to cost‐sharing?," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 90(1), pages 155-183, March.
    9. Shuduo Zhou & Jin Xu & Xiaochen Ma & Beibei Yuan & Xiaoyun Liu & Hai Fang & Qingyue Meng, 2020. "How Can One Strengthen a Tiered Healthcare System through Health System Reform? Lessons Learnt from Beijing, China," IJERPH, MDPI, vol. 17(21), pages 1-14, October.
    10. Hayen, Arthur P. & Klein, Tobias J. & Salm, Martin, 2021. "Does the framing of patient cost-sharing incentives matter? the effects of deductibles vs. no-claim refunds," Journal of Health Economics, Elsevier, vol. 80(C).
    11. Aouad, Marion & Brown, Timothy T. & Whaley, Christopher M., 2019. "Reference pricing: The case of screening colonoscopies," Journal of Health Economics, Elsevier, vol. 65(C), pages 246-259.
    12. M. Antonini & R. C. van Kleef & J. Henriquez & F. Paolucci, 2023. "Can risk rating increase the ability of voluntary deductibles to reduce moral hazard?," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 48(1), pages 130-156, January.
    13. SeungHoon Han & Hosung Sohn, 2023. "The short-term effects of fixed copayment policy on elderly health spending and service utilization: evidence from South Korea’s age-based policy using exact date of birth," International Journal of Health Economics and Management, Springer, vol. 23(2), pages 255-279, June.
    14. Benedict S. Jimenez & Whitney B. Afonso, 2022. "Revisiting the theory of revenue diversification: Insights from an empirical analysis of municipal budgetary solvency," Public Budgeting & Finance, Wiley Blackwell, vol. 42(2), pages 196-220, June.
    15. Hirotaka Kato & Rei Goto & Taishi Tsuji & Katsunori Kondo, 2022. "The effects of patient cost-sharing on health expenditure and health among older people: Heterogeneity across income groups," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 23(5), pages 847-861, July.
    16. Chen, Wen-Yi, 2020. "The welfare effect of co-payment adjustments on emergency department visits in medical centers: Evidence from Taiwan," Health Policy, Elsevier, vol. 124(11), pages 1192-1199.
    17. Ko, Hansoo, 2020. "Moral hazard effects of supplemental private health insurance in Korea," Social Science & Medicine, Elsevier, vol. 265(C).
    18. Corchón, Luis C. & Torregrosa, Ramón J., 2020. "Cournot equilibrium revisited," Mathematical Social Sciences, Elsevier, vol. 106(C), pages 1-10.
    19. Akhmad Murjani & Anna Martiana Afida & Sri Erliani & Taufik Hidayat & Abd. Basid & Juhriyansyah Dalle, 2020. "Health Oriented Spending and its Impact on Sustainable Ecological Footprint of ASEAN Countries: Taking No. of Hospitals, Budget Allocation for Health and R&D as Drivers," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 14(4), December.
    20. Chad D. Meyerhoefer & Samuel H. Zuvekas & Bita Fayaz Farkhad & John F. Moeller & Richard J. Manski, 2019. "The demand for preventive and restorative dental services among older adults," Health Economics, John Wiley & Sons, Ltd., vol. 28(9), pages 1151-1158, September.
    21. Benjamin Ly Serena, 2021. "Revisiting Offsets of Psychotherapy Coverage," CEBI working paper series 21-05, University of Copenhagen. Department of Economics. The Center for Economic Behavior and Inequality (CEBI).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Powell, David & Goldman, Dana, 2021. "Disentangling moral hazard and adverse selection in private health insurance," Journal of Econometrics, Elsevier, vol. 222(1), pages 141-160.
    2. Lin, Haizhen & Sacks, Daniel W., 2019. "Intertemporal substitution in health care demand: Evidence from the RAND Health Insurance Experiment," Journal of Public Economics, Elsevier, vol. 175(C), pages 29-43.
    3. M. Antonini & R. C. van Kleef & J. Henriquez & F. Paolucci, 2023. "Can risk rating increase the ability of voluntary deductibles to reduce moral hazard?," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 48(1), pages 130-156, January.
    4. Kurt Lavetti & Thomas DeLeire & Nicolas R. Ziebarth, 2023. "How do low‐income enrollees in the Affordable Care Act marketplaces respond to cost‐sharing?," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 90(1), pages 155-183, March.
    5. Randall P. Ellis & Wenjia Zhu, 2016. "Health Plan Type Variations in Spells of Health-Care Treatment," American Journal of Health Economics, University of Chicago Press, vol. 2(4), pages 399-430, Fall.
    6. Kowalski, Amanda E., 2015. "Estimating the tradeoff between risk protection and moral hazard with a nonlinear budget set model of health insurance," International Journal of Industrial Organization, Elsevier, vol. 43(C), pages 122-135.
    7. Guo, Audrey & Zhang, Jonathan, 2019. "What to expect when you are expecting: Are health care consumers forward-looking?," Journal of Health Economics, Elsevier, vol. 67(C).
    8. Klein, T.J.; & Salm, M.; & Upadhyay, S.;, 2024. "Patient cost-sharing and redistribution in health insurance," Health, Econometrics and Data Group (HEDG) Working Papers 24/15, HEDG, c/o Department of Economics, University of York.
    9. Klein, Tobias J. & Salm, Martin & Upadhyay, Suraj, 2024. "Patient Cost-Sharing and Redistribution in Health Insurance," IZA Discussion Papers 16778, Institute of Labor Economics (IZA).
    10. Liran Einav & Amy Finkelstein, 2018. "Moral Hazard in Health Insurance: What We Know and How We Know It," Journal of the European Economic Association, European Economic Association, vol. 16(4), pages 957-982.
    11. Toshiaki Iizuka & Hitoshi Shigeoka, 2018. "Free for Children? Patient Cost-sharing and Healthcare Utilization," NBER Working Papers 25306, National Bureau of Economic Research, Inc.
    12. Zarek C. Brot-Goldberg & Amitabh Chandra & Benjamin R. Handel & Jonathan T. Kolstad, 2017. "What does a Deductible Do? The Impact of Cost-Sharing on Health Care Prices, Quantities, and Spending Dynamics," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 132(3), pages 1261-1318.
    13. Klein, Tobias J. & Salm, Martin & Upadhyay, Suraj, 2022. "The response to dynamic incentives in insurance contracts with a deductible: Evidence from a differences-in-regression-discontinuities design," Journal of Public Economics, Elsevier, vol. 210(C).
    14. Haizhen Lin & Daniel W. Sacks, 2016. "Intertemporal Substitution in Health Care Demand: Evidence from the RAND Health Insurance Experiment," NBER Working Papers 22802, National Bureau of Economic Research, Inc.
    15. Klein, Tobias & Salm, Martin & Upadhyay, Suraj, 2020. "The Response to Dynamic Incentives in Insurance Contracts with a Deductible: Evidence from a Differences-in-Regression-Disconti," CEPR Discussion Papers 14552, C.E.P.R. Discussion Papers.
    16. Ackley, Calvin A., 2022. "Tiered cost sharing and health care demand," Journal of Health Economics, Elsevier, vol. 85(C).
    17. Dunn, Abe, 2016. "Health insurance and the demand for medical care: Instrumental variable estimates using health insurer claims data," Journal of Health Economics, Elsevier, vol. 48(C), pages 74-88.
    18. Natalia Serna, 2021. "Cost sharing and the demand for health services in a regulated market," Health Economics, John Wiley & Sons, Ltd., vol. 30(6), pages 1259-1275, June.
    19. Hayen, Arthur P. & Klein, Tobias J. & Salm, Martin, 2021. "Does the framing of patient cost-sharing incentives matter? the effects of deductibles vs. no-claim refunds," Journal of Health Economics, Elsevier, vol. 80(C).
    20. Anderson, David M. & Hoagland, Alex & Zhu, Ed, 2024. "Medical bill shock and imperfect moral hazard," Journal of Public Economics, Elsevier, vol. 236(C).

    More about this item

    Keywords

    Elasticity; Cost sharing; High deductible health plans; Dynamic demand for health care; Myopic expectations;
    All these keywords.

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jhecon:v:55:y:2017:i:c:p:232-243. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505560 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.