Health Economics Answer Key
trolled experiment, it did use randomization to assign participants to differ-
ent groups, and one group (the "lottery winners") were much more likely to
obtain health insurance.
4. The RAND HIE found that people assigned to the free health plan had the
same rate of hospitalization as people assigned to the cost-sharing plans.
The people assigned to the free plan visited the hospital more fre-
quently and were more likely to visit the ER.
5. In the RAND HIE, the arc elasticity of demand for inpatient care was larger
(in absolute value) than the arc elasticity of demand for outpatient care.
That result would imply that people are more price sensitive when
it comes to more urgent health care. Instead, the arc elasticity of demand for
impatient care was smaller in absolute value.
6. Unlike the usual measure of elasticity, an arc elasticity can be calculated from
just one price-quantity data point.
Any measure of elasticity requires data from at least two price levels
in order to measure responsiveness to price.
7. Both the RAND and Oregon studies find that demand for health care is ap-
proximately unit elastic, that is,
The RAND HIE finds that demand for health care is very inelastic,
with arc elasticities around 0.2.
8. In the RAND HIE, being assigned more generous insurance did not gener-
ally improve participants' health outcomes, except among certain subgroups.
The RAND HIE finds that generous insurance only provided small
health improvements to healthy people.
However, high-risk participants
(like those who were smokers or had high blood pressure) did receive sub-
stantial health benefits from more generous insurance.
9. To date, no major health insurance experiment has studied the impact of
insurance, just different levels of insurance.
The Oregon Medicaid Experiment studied the impact of uninsur-
10. Results from the Oregon Medicaid Experiment suggest that having health in-
surance has a positive impact on health status.
Bhattacharya, Hyde & Tu 2013