Price Elasticity of Expenditure across Health Care Services

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. Ifind elasticities that range between zero for the most acute service (appendectomy) and −2.08 for the most elective (psychologist visit). Moreover, the results show that at least one third of the elasticity is explained by the number of visits; the restis explained by the intensity of each visit. Finally, I find that high-income individuals are five times more price sensitive than low-income individuals and that older individuals are less price-sensitive than young individuals.