Intertemporal substitution in health care demand: Evidence from the RAND Health Insurance Experiment

Abstract

Conferences for helpful comments and feedback. We are grateful to the RAND investigators for providing publicly available, well documented replication data. Jordan Keener provided excellent research assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

Spot price biases in non-linear health insurance contracts

“…We then compare behavior before and after the introduction of the non-linear plan. Similar to Lin and Sacks (2019), we find that health care consumers react to the future spot price (induced by the reset) by purchasing 20% more toward the end of the coverage year. The increase in spending is only to some extent driven by an increase in pharmacy visits, implying that in our case, the response is not merely a question of strategic retiming of purchases that would otherwise have taken place immediately after the end-ofyear reset.…”

“…Knowing how they shape consumption -and implicit in this, how well consumers understand the plans -is therefore of key importance. Recent papers have provided evidence that individuals are forward-looking in their responses to the complex, dynamic incentives embodied in non-linear health insurance plans; see Einav, Finkelstein, and Schrimpf (2015), Cabral (2017), and Lin and Sacks (2019). In particular, these papers show that consumers shift the timing of their health care purchases and buy extensively in response to the coverage year reset.…”

Correcting for transitory effects in RCTs: Evidence from the RAND Health Insurance Experiment

“…Our results complement a recent literature on intertemporal substitution in healthcare. Lin and Sacks (2019) find that HIE participants facing temporarily free care—because they have exceeded the yearly maximum out‐of‐pocket amount—spend more in the final months of the year than participants in the free care program. Both face the same spot price, but the former group faces a price increase after the end of the calendar year.…”