Income, Price and Healthcare Utilization: Evidence from Two Quasi-experiments

Speaker：ZHANG Chuanchuan（Researcher, School of Economics, Zhe Jiang Universiey）

Host：PENG Haoran, Professor, Lingnan College

Time and Date：16:00-18:00, October 29, 2021

Venue：WANG Daohan Conference Room 

Abstract：

We explore two quasi-experiments in urban China and use administrative data with more than 3 million observations to estimate the income elasticity and price elasticity of the demand for medical care. First, we explore the timing of pension increases and use an event study approach to estimate the impact of pension income on healthcare utilization among retirees. We find that the income elasticity of inpatient care usage ranges from 1.3-2.0. Second, we exploit a sharp reduction in consumer cost sharing for inpatient care at age 80 and using a regression discontinuity design (RDD) to estimate the price elasticity of the demand for medical care. The price elasticity of inpatient care usage ranges from -0.15 to -0.32. The effects are larger for poorer populations and for individuals with chronic diseases. We then decompose the uncompensated price elasticity into the substitution (compensated) price elasticity and the part due to the income effect. Our decomposition results suggest that 40-60 percent of the “moral hazard” is due to the income effect and should not be viewed as a deadweight loss.