Measuring consumer responsiveness to medical care prices is a central issue in health economics and a key ingredient in the optimal design and regulation of health insurance markets. We study consumer price responsiveness to medical care prices, leveraging a natural experiment that occurred at a large self-insured firm which forced all of its employees to switch from an insurance plan that provided free health care to a non-linear high deductible insurance plan with markedly higher cost sharing. We find that the switch caused a 16.45% reduction in total yearly medical expenditures at the firm, leading to approximately $123 million less medical spending per year. We break down this total spending reduction into the three components of (i) provider price inflation (ii) consumer price shopping and (iii) quantity reductions and find reductions are entirely due to changes in quantity. We investigate the reduction in spending as a function of consumer demographics, health status and types of medical services consumed. We then investigate consumers respond to the complex structure of the non-linear high-deductible contract. We investigate whether consumers respond to expected end-of-year marginal prices, spot prices at the time of care and or ex ante average prices. We find that the majority of incremental spending reductions at any point in the calendar year come from consumers who are under the deductible and respond to the spot price at that point in time.
Research on Monday Rotterdam
- Speaker(s)
- Jonathan Kolstad (University of California, Berkeley, United States)
- Date
- Monday, September 14, 2015
- Location
- Rotterdam