The RAND Health Insurance Experiment, Three Decades Later
Name
Finkelstein_The RAND health.pdf
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1 MB
Format
Adobe PDF
Checksum (MD5)
6cc5643f09d89bca7172b3ee165a67f1
Author(s)
Aron-Dine, Aviva
Einav, Liran
Finkelstein, Amy
Date Issued
February 2013
Journal
Journal of Economic Perspectives
Publisher
American Economic Association
Citation
Aron-Dine, Aviva, Liran Einav, and Amy Finkelstein. “The RAND Health Insurance Experiment, Three Decades Later.” Journal of Economic Perspectives 27, no. 1 (February 2013): 197-222. © 2013 by the American Economic Association
Version
Final published version
Abstract
Between 1974 and 1981, the RAND health insurance experiment provided health insurance to more than 5,800 individuals from about 2,000 households in six different locations across the United States, a sample designed to be representative of families with adults under the age of 62. More than three decades later, the RAND results are still widely held to be the "gold standard" of evidence for predicting the likely impact of health insurance reforms on medical spending, as well as for designing actual insurance policies. On cost grounds alone, we are unlikely to see something like the RAND experiment again. In this essay, we reexamine the core findings of the RAND health insurance experiment in light of the subsequent three decades of work on the analysis of randomized experiments and the economics of moral hazard. First, we re-present the main findings of the RAND experiment in a manner more similar to the way they would be presented today. Second, we reexamine the validity of the experimental treatment effects. Finally, we reconsider the famous RAND estimate that the elasticity of medical spending with respect to its out-of pocket price is -0.2. We draw a contrast between how this elasticity was originally estimated and how it has been subsequently applied, and more generally we caution against trying to summarize the experimental treatment effects from nonlinear health insurance contracts using a single price elasticity.
MIT Department
Massachusetts Institute of Technology. Department of Economics
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Article is made available in accordance with the publisher's policy and may be subject to US copyright law. Please refer to the publisher's site for terms of use.
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DOI of Published Version
https://doi.org/10.1257/jep.27.1.197
