The Demand Elasticity of Health Care Spending for Low-Income Individuals

Abstract

Low-income individuals are typically the most price sensitive segment of the mar-ket, but this is not true in the market for health care services. I show that low-income individuals have a smaller demand elasticity of medical spending with re-spect to coinsurance, relative to their higher income counterparts, using data from the RAND Health Insurance experiment. The null effect is driven by disproportion-ate share of low-income individuals who consume zero health care. The key insight is that low-income individuals may optimally consume zero health care because, when marginal utility of consumption is high, forgoing non-medical consumption becomes very costly.

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Reference

Angélique Acquatella, “The Demand Elasticity of Health Care Spending for Low-Income Individuals”, TSE Working Paper, n. 23-1477, September 2023.