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Paying on the Margin for Medical Care: Evidence from Breast Cancer Treatments

Author

Listed:
  • Liran Einav
  • Amy Finkelstein
  • Heidi Williams

Abstract

We present a simple graphical framework to illustrate the potential welfare gains from a "top-up" health insurance policy requiring patients to pay the incremental price for more expensive treatment options. We apply this framework to breast cancer treatments, where lumpectomy with radiation therapy is more expensive than mastectomy but generates similar average health benefits. We estimate the relative demand for lumpectomy using variation in distance to the nearest radiation facility, and estimate that the "top-up" policy increases social welfare by $700-2,500 per patient relative to two common alternatives. We briefly discuss additional tradeoffs that arise from an ex ante perspective. (JEL G22, I11, I13, I18)

Suggested Citation

  • Liran Einav & Amy Finkelstein & Heidi Williams, 2016. "Paying on the Margin for Medical Care: Evidence from Breast Cancer Treatments," American Economic Journal: Economic Policy, American Economic Association, vol. 8(1), pages 52-79, February.
    • Handle: RePEc:aea:aejpol:v:8:y:2016:i:1:p:52-79
    Note: DOI: 10.1257/pol.20140293
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    Cited by:

    1. Sovinsky, Michelle & Stern, Steven & Michel, Chloé, 2019. "Value of Risky Lifestyle Choices," CEPR Discussion Papers 13537, C.E.P.R. Discussion Papers.
    2. Mark Shepard & Katherine Baicker & Jonathan Skinner, 2020. "Does One Medicare Fit All? The Economics of Uniform Health Insurance Benefits," Tax Policy and the Economy, University of Chicago Press, vol. 34(1), pages 1-41.
    3. Paul Dolfen & Liran Einav & Peter J. Klenow & Benjamin Klopack & Jonathan D. Levin & Larry Levin & Wayne Best, 2023. "Assessing the Gains from E-Commerce," American Economic Journal: Macroeconomics, American Economic Association, vol. 15(1), pages 342-370, January.
    4. Aljoscha Janssen, 2022. "Price dynamics of Swedish pharmaceuticals," Quantitative Marketing and Economics (QME), Springer, vol. 20(4), pages 313-351, December.
    5. Kortelainen, Mika & Markkanen, Jaakko & Toivanen, Otto & Siikanen, Markku, 2023. "The Effects of Price Regulation on Pharmaceutical Expenditure and Availability," CEPR Discussion Papers 18497, C.E.P.R. Discussion Papers.
    6. Bauer, Daniel & Lakdawalla, Darius & Reif, Julian, 2025. "Health risk and the value of life," Journal of Public Economics, Elsevier, vol. 245(C).
    7. Damien Besancenot & Karine Lamiraud & Radu Vranceanu, 2023. "A model for dual health care market with congestion differentiation," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 32(2), pages 400-423, April.
    8. Yoshida, Jun, 2021. "Does disclosure of success rates induce patients to move to a better clinic? Evidence from In Vitro Fertilization," MPRA Paper 108441, University Library of Munich, Germany.
    9. Atul Gupta & Sabrina T Howell & Constantine Yannelis & Abhinav Gupta, 2024. "Owner Incentives and Performance in Healthcare: Private Equity Investment in Nursing Homes," The Review of Financial Studies, Society for Financial Studies, vol. 37(4), pages 1029-1077.
    10. Jui-fen Rachel Lu & Karen Eggleston & Joseph Tung-Chieh Chang, 2018. "Economic Dimensions of Personalized and Precision Medicine in Asia: Evidence from Breast Cancer Treatment in Taiwan," NBER Chapters, in: Economic Dimensions of Personalized and Precision Medicine, pages 237-272, National Bureau of Economic Research, Inc.
    11. Jin, Ginger Zhe & Lien, Hsienming & Tao, Xuezhen, 2025. "Top-up design and health care expenditure: Evidence from cardiac stents," China Economic Review, Elsevier, vol. 93(C).
    12. David Card & Alessandra Fenizia & David Silver, 2018. "The Health Effects of Cesarean Delivery for Low-Risk First Births," NBER Working Papers 24493, National Bureau of Economic Research, Inc.
    13. Lucarelli, Claudio & Nicholson, Sean & Tilipman, Nicholas, 2022. "Price Indices and the Value of Innovation with Heterogenous Patients," Journal of Health Economics, Elsevier, vol. 84(C).
    14. Liran Einav & Amy Finkelstein & Neale Mahoney, 2025. "Producing Health: Measuring Value Added of Nursing Homes," Econometrica, Econometric Society, vol. 93(4), pages 1225-1264, July.
    15. Atul Gupta & Sabrina T Howell & Constantine Yannelis & Abhinav Gupta, 2021. "Does Private Equity Investment in Healthcare Benefit Patients? Evidence from Nursing Homes," Working Papers 2021-20, Becker Friedman Institute for Research In Economics.

    More about this item

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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