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The RAND Health Insurance Experiment, Three Decades Later

  • Aviva Aron-Dine
  • Liran Einav
  • Amy Finkelstein

We re-present and re-examine the analysis from the famous RAND Health Insurance Experiment from the 1970s on the impact of consumer cost sharing in health insurance on medical spending. We begin by summarizing the experiment and its core findings in a manner that would be standard in the current age. We then examine potential threats to the validity of a causal interpretation of the experimental treatment effects stemming from different study participation and differential reporting of outcomes across treatment arms. Finally, we re-consider the famous RAND estimate that the elasticity of medical spending with respect to its out-of-pocket price is -0.2, emphasizing the challenges associated with summarizing the experimental treatment effects from non-linear health insurance contracts using a single price elasticity.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18642.

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Date of creation: Dec 2012
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Publication status: published as 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.
Handle: RePEc:nbr:nberwo:18642
Note: AG HC PE IO
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  1. Marianne P. Bitler & Jonah B. Gelbach & Hilary W. Hoynes, 2003. "What Mean Impacts Miss: Distributional Effects of Welfare Reform Experiments," Working Papers 109, RAND Corporation Publications Department.
  2. Amanda E. Kowalski, 2009. "Censored Quantile Instrumental Variable Estimates of the Price Elasticity of Expenditure on Medical Care," NBER Working Papers 15085, National Bureau of Economic Research, Inc.
  3. James J. Heckman & Seong Hyeok Moon & Rodrigo Pinto & Peter A. Savelyev & Adam Yavitz, 2010. "Analyzing Social Experiments as Implemented: A Reexamination of the Evidence From the HighScope Perry Preschool Program," NBER Working Papers 16238, National Bureau of Economic Research, Inc.
  4. 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.
  5. Aviva Aron-Dine & Liran Einav & Amy Finkelstein & Mark R. Cullen, 2012. "Moral Hazard in Health Insurance: How Important Is Forward Looking Behavior?," NBER Working Papers 17802, National Bureau of Economic Research, Inc.
  6. Steven D. Levitt & John A. List, 2011. "Was There Really a Hawthorne Effect at the Hawthorne Plant? An Analysis of the Original Illumination Experiments," American Economic Journal: Applied Economics, American Economic Association, vol. 3(1), pages 224-38, January.
  7. Rodrigo Pinto & Azeem Shaikh & Adam Yavitz & James Heckman, 2010. "Inference with Imperfect Randomization: The Case of the Perry Preschool Program," 2010 Meeting Papers 1336, Society for Economic Dynamics.
  8. Joshua Angrist & Eric Bettinger & Michael Kremer, 2006. "Long-Term Educational Consequences of Secondary School Vouchers: Evidence from Administrative Records in Colombia," American Economic Review, American Economic Association, vol. 96(3), pages 847-862, June.
  9. Orley Ashenfelter, 1990. "Non-Parametric Estimates of the Labor Supply Effects of Negative Income Tax Programs," Working Papers 639, Princeton University, Department of Economics, Industrial Relations Section..
  10. Krueger, Alan B & Whitmore, Diane M, 2001. "The Effect of Attending a Small Class in the Early Grades on College-Test Taking and Middle School Test Results: Evidence from Project STAR," Economic Journal, Royal Economic Society, vol. 111(468), pages 1-28, January.
  11. Charles Michalopoulos & David Wittenburg & Dina A. R. Israel & Jennifer Schore & Anne Warren & Aparajita Zutshi & Stephen Freedman & Lisa Schwartz, 2011. "The Accelerated Benefits Demonstration and Evaluation Project Impacts on Health and Employment at Twelve Months," Mathematica Policy Research Reports 00f10b2f7afb4f56b0e79bb01, Mathematica Policy Research.
  12. 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.
  13. Amanda E. Kowalski, 2012. "Estimating the Tradeoff Between Risk Protection and Moral Hazard with a Nonlinear Budget Set Model of Health Insurance," NBER Working Papers 18108, National Bureau of Economic Research, Inc.
  14. repec:mpr:mprres:7005 is not listed on IDEAS
  15. Joseph P. Newhouse, 1992. "Medical Care Costs: How Much Welfare Loss?," Journal of Economic Perspectives, American Economic Association, vol. 6(3), pages 3-21, Summer.
  16. Keeler, Emmett B & Newhouse, Joseph P & Phelps, C E, 1977. "Deductibles and the Demand for Medical Care Services: The Theory of a Consumer Facing a Variable Price Schedule under Uncertainty," Econometrica, Econometric Society, vol. 45(3), pages 641-55, April.
  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.
  18. David S. Lee, 2009. "Training, Wages, and Sample Selection: Estimating Sharp Bounds on Treatment Effects," Review of Economic Studies, Oxford University Press, vol. 76(3), pages 1071-1102.
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