Does full insurance increase the demand for health care?
We estimate the causal eﬀect of having full health insurance on health care expenditures. We take advantage of a unique quasi-experimental setup in which deductibles and co- payments were zero in a managed care plan, and non-zero in regular insurance, until a policy change forced all individuals with an active plan to cover a minimum amount of their expenses. Using panel data and a non-linear difference-in-differences strategy, we find a demand elasticity of about -0.14 comparing full insurance with the cost-sharing model, and a significant upward shift in the likelihood to generate costs.
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