Title: |
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New Estimates of the Demand for Physical and Mental Health Treatment |
Description: |
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Consumers' price responsiveness is central to current reform proposals to address rapidly escalating health care costs, but the best available estimates of price elasticities of demand are now more than 25 years old. We seek to provide more current estimates of the demand for both
mental and physical health treatment using a health care demand model that incorporates the relevant costs influencing consumption decisions, including out-of-pocket payments (costsharing) for ambulatory services, out-of-pocket prescription drug costs, and insurance premiums. Following Ellis (1986) and Ellis and McGuire (1986), we use consumers' out-of-pocket payments to derive theoretically appropriate expected end-of-year prices. The demand model is estimated using the 1996-2003 Medical Expenditure Panel Survey (MEPS), a nationally representative survey of the U.S. civilian, non-institutionalized population. We address the potential endogeneity of expected end-of-year prices and health insurance coverage (or adverse selection) by estimating a correlated random effects specification (Chamberlain, 1980). This
allows us to relax the untenable assumption of standard random effect models that price and health insurance are uncorrelated with unobserved individual attributes. We find that the price responsiveness of ambulatory mental health visits has decreased substantially in the last 30 years and is now slightly less elastic than visits for physical health problems. However, the demand for both mental health and non-mental prescription drugs is substantially more price elastic. We
discuss the implications of our results. |
Author(s): |
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Chad D. Meyerhoefer and Samuel Zuvekas |
Agency: |
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Rockville (MD): Agency for Healthcare Research and Quality |
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