HEALTH CARE DEMAND

1
HEALTH CARE DEMAND
2
Rational Choice

• Does it apply?
• not all choices are emergencies
• some health care expenditures are planned
• this is an empirical question anyway

3
Consumer Equilibrium
Other Goods
0
Visits
4
The Health Care Demand Curve

A
P1
Other Goods
C
A
B
B
P2
C
P3
0
0
V1
V2
V3
V1
V2
V3
Visits
Visits
5
Price Elasticity of Demand
6
Effect of Income

Increased income increases demand
D2
D1
0
Visits
7
Cross-Price Elasticities

• Substitutes
• e.g., physician visits and outpatient visits
• Complements
• e.g., physician visits and diagnostic services

8
The Role of Health Status
Preferences when well
Other Goods
E
Preferences when ill
E/
0
Visits
9
The Role of Time

• Travel time
• Waiting time

10
Elasticity and Time

• The greater the time cost, the lower Ep
• Reducing time costs makes Ep greater

11
The Role of Insurance
D2

D1 Demand w/o insurance D2 Demand w/ 50
coinsurance
D1
A
C
40
B
E
20
D
10
0
Visits
12
The Effect of Insurance

• Increases demand
• Reduces elasticity of demand

13
Effect of Insurance on Expenditures
D2
S

D1
P2
P1
0
Q1
Q2
Visits
14
Summary of Health Care Demand
Where HC Quantity of care demanded
P Price of a unit of health care
r coinsurance rate t
time cost Ps price of substitute
goods Pc price of complements
Y Income HS Health
status index
15
Problems Estimating the HC Function

• What is a unit of health care?
• expenditure measure
• patient days
• visits to physicians
• each measure will result in different
  elasticities
• Different populations
• Data sources
• insurance claims vs surveys
• Experimental vs non-experimental data
• the Rand experiment

16
Estimates of Price Elasticity

• Various measures of health care quantity
• expenditures
• physician services
• hospital services
• nursing homes
• Highly inelastic, in general (Table 8.2)
• Firm specific elasticities higher (T 8.3)

17
Time Elasticity

• Actons results
• time elasticities somewhat higher (T 8.1)
• interesting cross elasticities
• Coffey finds lower elasticities
• Time elasticity higher for dental care

18
Income Elasticity

• Within country
• positive (i.e., health care is a normal good)
• low (i.e., health care is a necessity, not a
  luxury)
• Table 8.4
• Between countries
• elasticities greater than one
• what are our results?
• Why the inconsistency?
• Individual vs aggregate demands
• level of technology and quality

19
Insurance Elasticity

• The Rand experiment
• random assignment to 0, 25, 50, and 95
  coinsurance plans
• large effect (T 8.5)
• 50 percent increase in average household
  expenditures between 0 and 95 plans

20
Other effects

• Race
• Sex
• Age
• Health status
• interaction effect between price and health status