WHAT DOES A DEDUCTIBLE DO? THE IMPACT OF COST-SHARING ON HEALTH CARE PRICES, QUANTITIES, AND SPENDING DYNAMICS

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 leverage a natural experiment at a large self-insured firm that required all of its employees to switch from an in...

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Bibliographic Details
Published in:The Quarterly journal of economics 2017-08, Vol.132 (3), p.1261-1318
Main Authors: Brot-Goldberg, Zarek C., Chandra, Amitabh, Handel, Benjamin R., Kolstad, Jonathan T.
Format: Article
Language:English
Subjects:
Consumer behavior
Consumer-driven health plans
Consumers
Cost sharing
Deductible coverage
Health care
Health care expenditures
Health economics
Health insurance
Health services
Leverage
Markets
Preventive medicine
Prices
Responsiveness
Shadow prices
Shopping
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Summary: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 leverage a natural experiment at a large self-insured firm that required all of its employees to switch from an insurance plan that provided free health care to a nonlinear, high-deductible plan. The switch caused a spending reduction between 11.8% and 13.8% of total firm-wide health spending. We decompose this spending reduction into the components of (i) consumer price shopping, (ii) quantity reductions, and (iii) quantity substitutions and find that spending reductions are entirely due to outright reductions in quantity. We find no evidence of consumers learning to price shop after two years in high-deductible coverage. Consumers reduce quantities across the spectrum of health care services, including potentially valuable care (e.g., preventive services) and potentially wasteful care (e.g., imaging services). To better understand these changes, we study how consumers respond to the complex structure of the highdeductible contract. Consumers respond heavily to spot prices at the time of care, reducing their spending by 42% when under the deductible, conditional on their true expected end-of-year price and their prior year end-of-year marginal price. There is no evidence of learning to respond to the true shadow price in the second year post-switch.
ISSN:0033-5533
1531-4650
DOI:10.1093/qje/qjx013