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Implications of the Interaction Between Insurance Choice and Medical Care Demand

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  • Richard Dusansky
  • Çağatay Koç

Abstract

The gross price elasticity of demand for medical care is decomposed into two separate observable components: the medical care gross price elasticity of insurance choice and the cost‐sharing elasticity of medical care. When consumers alter their choice of health‐care plans, the price elasticity of medical care is no longer equivalent to the cost‐sharing elasticity; using the latter as a proxy for the former may produce misleading results. We present conditions under which the medical care price elasticity is positive, the case of a quasi‐Giffen good, and provide a theoretical foundation for extant empirical findings of a positive medical care price elasticity of insurance demand.

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  • Richard Dusansky & Çağatay Koç, 2010. "Implications of the Interaction Between Insurance Choice and Medical Care Demand," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 77(1), pages 129-144, March.
    • Handle: RePEc:bla:jrinsu:v:77:y:2010:i:1:p:129-144
    DOI: 10.1111/j.1539-6975.2009.01335.x
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    2. Pilny, Adam & Wübker, Ansgar & Ziebarth, Nicolas R., 2017. "Introducing risk adjustment and free health plan choice in employer-based health insurance: Evidence from Germany," Journal of Health Economics, Elsevier, vol. 56(C), pages 330-351.
    3. Richard Dusansky & Çağatay Koç, 2016. "Individual Welfare When Consumers Can Shop For Health Insurance," Economic Inquiry, Western Economic Association International, vol. 54(2), pages 1283-1290, April.

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