Patient Cost-Sharing, Hospitalization Offsets, and the Design of Optimal Health Insurance for the Elderly
Patient cost-sharing for primary care and prescription drugs is designed to reduce the prevalence of moral hazard in medical utilization. Yet the success of this strategy depends on two factors: the elasticity of demand for those medical goods, and the risk of downstream hospitalizations by reducing access to beneficial health care. Surprisingly, we know little about either of these factors for the elderly, the most intensive consumers of health care in our country. We remedy both of these deficiencies by studying a policy change that raised patient cost-sharing for retired public employees in California. We find that physician office visits and prescription drug utilization are price sensitive, with implied arc-elasticities that are similar to those of the famous RAND Health Insurance Experiment (HIE). However, unlike the HIE, we find substantial "offset" effects in terms of increased hospital utilization in response to the combination of higher copayments for physicians and prescription drugs. These offset effects are concentrated in patients for whom medical care is presumably efficacious: those with a chronic disease. Finally, we find that the savings from increased cost-sharing accrue mostly to the supplemental insurer, while the costs of increased hospitalization accrue mostly to Medicare; thus, there is a fiscal externality associated with cost-sharing increases by supplemental insurers. Our findings suggest that health insurance should be tied to underlying health status, with chronically ill patients facing lower cost-sharing. We also conclude that the externalities to Medicare from supplemental insurance coverage may be more modest than previously suggested due to these offsets.
|Date of creation:||Mar 2007|
|Date of revision:|
|Publication status:||published as Chandra, Amitabh, Jonathan Gruber and Robin McKnight. “Patient Cost-Sharing and Hospitalization Offsets in the Elderly.” American Economic Review 100, 1 (March 2010): 193-213.|
|Contact details of provider:|| Postal: |
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Tomas J. Philipson & Dana Goldman, 2007.
"Integrated Insurance Design in the Presence of Multiple Medical Technologies,"
American Economic Review,
American Economic Association, vol. 97(2), pages 427-432, May.
- Dana Goldman & Tomas Philipson, 2007. "Integrated Insurance Design in the Presence of Multiple Medical Technologies," NBER Working Papers 12870, National Bureau of Economic Research, Inc.
- Lee A. Lillard & Jeannette Rogowski & Raynard Kington, 1999.
"Insurance Coverage for Prescription Drugs: Effects on Use and Expenditures in the Medicare Population,"
99-09, RAND Corporation Publications Department.
- Lillard, L.A. & Rogowski, J. & Kington, R., 1999. "Insurance Coverage for Prescription Drugs: Effects on Use and Expenditures in the Medicare Population," Papers 99-09, RAND - Labor and Population Program.
- Hurd, Michael D. & McGarry, Kathleen, 1997. "Medical insurance and the use of health care services by the elderly," Journal of Health Economics, Elsevier, vol. 16(2), pages 129-154, April.
- Amy Finkelstein, 2005.
"The Aggregate Effects of Health Insurance: Evidence from the Introduction of Medicare,"
NBER Working Papers
11619, National Bureau of Economic Research, Inc.
- Amy Finkelstein, 2007. "The Aggregate Effects of Health Insurance: Evidence from the Introduction of Medicare," The Quarterly Journal of Economics, MIT Press, vol. 122(1), pages 1-37, 02.
- Rosett, Richard N & Huang, Lien-fu, 1973. "The Effect of Health Insurance on the Demand for Medical Care," Journal of Political Economy, University of Chicago Press, vol. 81(2), pages 281-305, Part I, M.
- Wolfe, John R. & Goddeeris, John H., 1991. "Adverse selection, moral hazard, and wealth effects in the medigap insurance market," Journal of Health Economics, Elsevier, vol. 10(4), pages 433-459.
- Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2002.
"How Much Should We Trust Differences-in-Differences Estimates?,"
NBER Working Papers
8841, National Bureau of Economic Research, Inc.
- Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2004. "How Much Should We Trust Differences-in-Differences Estimates?," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 249-275, February.
- Ettner, Susan L., 1997. "Adverse selection and the purchase of Medigap insurance by the elderly," Journal of Health Economics, Elsevier, vol. 16(5), pages 543-562, October.
- Feldstein, Martin S, 1971. "Hospital Cost Inflation: A Study of Nonprofit Price Dynamics," American Economic Review, American Economic Association, vol. 61(5), pages 853-72, December.
- 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 251-77, June.
- Lillard, L.A. & Rogowski, J., 1995. "Does Supplemental Private Insurance Increase Medicare Costs?," Papers 95-16, RAND - Labor and Population Program.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:12972. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.