Price Elasticity of Expenditure across Health Care Services

Fabian Duarte, Yale University

Abstract

Policymakers in countries around the world are faced with rising health care costs and are debating ways to reform health care to reduce expenditures. Estimates of price elasticity of expenditure are a key component for predicting expenditures under alternative policies. Using unique individual-level data compiled from administrative records from the Chilean private health insurance market, I estimate the price elasticity of expenditures across a variety of health care services. These rich data allow me to examine the heterogeneity of price elasticities across types of service and demographic groups. Using exogenous changes in price generated by changes made by the Chilean public insurance regulator, I am able to handle the endogeneity problem between unobserved consumer attributes and health insurance plan choice. I can do so for the entire private market in Chile and for a range of health services, which is something prior studies have been unable to do. I find elasticities that range between zero for the most acute service (appendectomy) and -2.08 for the most elective (psychologist visit).