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Price and Income Elasticities for Medical Care Services

In: The Economics of Health and Medical Care

Author

Listed:
  • Joseph P. Newhouse

    (Rand Corporation)

  • Charles E. Phelps

    (Rand Corporation)

Abstract

This paper develops a framework for estimating demand for medical care, expanding Grossman’s ‘investment model’ in three significant ways: multiple medical inputs are allowed in production of health, reimbursement insurance is introduced (altering the net price of care) and choice of different ‘styles’ of care is allowed. Demand curves are estimated from 1963 United States household survey data, with the analysis limited to those with positive observed quantities of service. Use of explicit parameters from insurance policies to defined net price is a unique empirical aspect of the paper. Price elasticities of demand for hospital, physician office and hospital outpatient services are found to be small, all lying below 0·2 in absolute value. Wage income elasticities are positive and non-wage income is found to have no effect on demand, both as hypothesized by the model. Insurance coverage is also shown to influence price of services used, as does wage income and the quantity of services demanded.

Suggested Citation

  • Joseph P. Newhouse & Charles E. Phelps, 1974. "Price and Income Elasticities for Medical Care Services," International Economic Association Series, in: Mark Perlman (ed.), The Economics of Health and Medical Care, chapter 9, pages 139-161, Palgrave Macmillan.
    • Handle: RePEc:pal:intecp:978-1-349-63660-0_9
    DOI: 10.1007/978-1-349-63660-0_9
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    Citations

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    Cited by:

    1. Cinzia Di Novi & Anna Marenzi & Dino Rizzi, 2018. "Do healthcare tax credits help poor-health individuals on low incomes?," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 19(2), pages 293-307, March.
    2. Somanathan, Aparnaa, 2008. "The impact of price subsidies on child health care use : evaluation of the Indonesian healthcard," Policy Research Working Paper Series 4622, The World Bank.
    3. Eunja Park & Sookja Choi, 2020. "Who Benefits from the Fixed Copayment of Medical and Pharmaceutical Expenditure among the Korean Elderly?," IJERPH, MDPI, vol. 17(21), pages 1-11, November.
    4. Goldman, Fred & Grossman, Michael, 1978. "The Demand for Pediatric Care: An Hedonic Approach," Journal of Political Economy, University of Chicago Press, vol. 86(2), pages 259-280, April.
    5. Galina Besstremyannaya, 2014. "Heterogeneous effect of coinsurance rate on healthcare costs: generalized finite mixtures and matching estimators," Discussion Papers 14-014, Stanford Institute for Economic Policy Research.
    6. Berta Rivera & Luis Currais, 2003. "The effect of health investment on growth: A causality analysis," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 9(4), pages 312-323, November.
    7. Nilgun Yavuz & Veli Yilanci & Zehra Ozturk, 2013. "Is health care a luxury or a necessity or both? Evidence from Turkey," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 14(1), pages 5-10, February.
    8. Yuping Tsai, 2018. "Social Security Income and Health Care Spending: Evidence from the Social Security Notch," Scandinavian Journal of Economics, Wiley Blackwell, vol. 120(2), pages 440-464, April.
    9. Pierre‐Yves Crémieux & Pierre Ouellette & Caroline Pilon, 1999. "Health care spending as determinants of health outcomes," Health Economics, John Wiley & Sons, Ltd., vol. 8(7), pages 627-639, November.
    10. Pierre‐Yves Crémieux & Marie‐Claude Meilleur & Pierre Ouellette & Patrick Petit & Martin Zelder & Ken Potvin, 2005. "Public and private pharmaceutical spending as determinants of health outcomes in Canada," Health Economics, John Wiley & Sons, Ltd., vol. 14(2), pages 107-116, February.
    11. Cutler, David M. & Zeckhauser, Richard J., 2000. "The anatomy of health insurance," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 11, pages 563-643, Elsevier.
    12. Jon B. Christianson & Steven G. Bender, 1982. "Benefit-Cost Analysis and Medical Care Delivery System Change," Evaluation Review, , vol. 6(4), pages 481-504, August.
    13. Willard G. Manning, Jr. & Joseph P. Newhouse & John E. Ware, Jr., 1982. "The Status of Health in Demand Estimation; or, Beyond Excellent, Good, Fair, Poor," NBER Chapters, in: Economic Aspects of Health, pages 141-184, National Bureau of Economic Research, Inc.
    14. Stéphane Jacobzone, 1996. "Les politiques de santé face aux propriétés incitatives et redistributives des systèmes d'assurance-maladie," Économie et Statistique, Programme National Persée, vol. 291(1), pages 49-70.
    15. Thomas Barnay & Éric Defebvre, 2018. "L'influence des conditions de travail passées sur la santé et la consommation de médicaments auto-déclarées des retraités," Post-Print hal-02070314, HAL.

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