Question

The RAND Health Insurance Study was set up to examine the effect of economic incentives on medical care demand. What were the major findings of this study? In your opinion, does this study validate entirely that higher costs for the individual will result in lower consumption when it comes to healthcare?

Answer 1

The RAND Health Insurance Study/Experiment (RAND HIE) was conducted from 1974 t0 1982, where the US healthcare costs, utilization and outcomes were studied on subjects for different kinds of plans assigned to them and their subsequent behaviors.

The major findings from this study were:

• Cost sharing reduced the unnecessary medical care overutilization, along with the needed medical care utilization.
• Health insurance sans coinsurance results in more service utilization, i.e. more services used per person, for both inpatient and outpatient services.
• Free care has a very minimal influence (favorable or adverse) on services utilization, but low income groups (sick people) assigned to HMO faced a bigger risk of dying, than the ones assigned for fee-for-service care.
• Cost sharing reduces, both needed and unnecessary medical care utilization.
• For the ones covered by employment-based insurance plans, there was minimal or no effect on the subject’s health status, with reduction in usage of healthcare services.
• For the poor and sick, covered by Medicaid or lacking any form of insurance, the reduction in use of healthcare proved to harmful, on average.   

In my view, this study does validate that higher the costs borne by individuals, lower the healthcare consumption or utilization. Although, the effect on the average health status might vary as per society cadres or groups, but the overall consumption does decrease with increased costs.