TAILIEUCHUNG - Lecture Health economics - Chapter 4: Demand for medical services (Part 2)

This chapter presents the following content: Empirical estimates of demand from the literature, practice problems, the RAND health insurance experiment, example: interpreting results from a regression on abortion demand. | Demand for Medical Services Part 2 Health Economics Professor Vivian Ho Fall 2009 These notes draw from material in Santerre & Neun, Health Economics, Theories, Insights and Industry Studies. Southwestern Cengate 2010 Outline Empirical estimates of demand from the literature Practice problems The RAND Health Insurance Experiment Example: Interpreting results from a regression on abortion demand Estimating Demand for Medical Care Quantity demanded = f( ) out-of-pocket price real income time costs prices of substitutes and complements tastes and preferences profile state of health quality of care Empirical Evidence Demand for primary care services (prevention, early detection, & treatment of disease) has been found to be price inelastic Estimates tend to be in the to range A 10% in the out-of-pocket price of hospital or physician services leads to a 1 to 7% decrease in quantity demanded Ceteris paribus, total expenditures on hospital and physician services increase with a greater out-of-pocket price Empirical Evidence (cont.) Demand for other types of medical care is slightly more price elastic than demand for primary care Consumers should be more price sensitive as the portion of the bill paid out of pocket increases Out-of-Pocket Payments in the . Hypothesis: Consumers are more price sensitive if they pay a larger % of the health care bill The fall in the % of out-of-pocket payments may explain the rapid rise in health care costs Source: Health, United States Total Expenditures and % Paid Out-of-Pocket, 2007 Out-of-Pocket Payments in the . Hypothesis: Consumers are more price sensitive if they pay a larger % of the health care bill Higher hospital and physician expenditures may be due to the low % paid out-of-pocket Source: Health, United States Out-of-Pocket Payments in the . (cont.) The previous 2 slides argue that: insurance coverage expenditures But it may be the opposite: expenditures insurance coverage.

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