In many ways, the RAND Health Insurance Experiment confirmed what common sense would have predicted in any event. That doesn't diminish its importance. Some of the most significant studies in economics have confirmed common sense. And in health policy – where common-sense thinking is such a rare commodity – these results were surely needed. Other findings, however, are more subtle. The study found:

1. Patients are responsive to out-of-pocket costs; if people face a high deductible, rather than first-dollar coverage, they will reduce their health care spending by about 30%.
2. This reduction in health care spending has no effect on the patient's health care in most cases.
3. Patients reduce their spending not by comparing the marginal value of various medical services with other uses of money; rather, they reduce their spending by deciding not to initiate care in the first place.
4. Once patients enter the health care system they tend to get the same care, regardless of the size of their deductible. (Reconfirmed in a more recent RAND study.)
5. Unfortunately, once patients enter the system they receive effective (appropriate) care only 62% of the time. (The more recent estimate is 55%.)
6. Partly as a result of the above, patients with high deductibles reduce their spending on more effective care about as much as the reduction in less effective care.

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As health policy studies go, the RAND Health Insurance Experiment is the gold standard. Conducted 25 years ago at a cost of $50 million (close to $300 million in today's medical marketplace), this study sorted families into health plans with different deductibles as well as an HMO, and carefully monitored the results.

The findings: (a) patients are responsive to out-of-pocket costs (the more they have to pay, the less health care they buy); (b) changes in the amount of spending have no apparent impact on health care outcomes in most cases; and (c) judging from the difference in behavior between HMO doctors and fee-for-service doctors, physicians are also very responsive to economic incentives.

So what does this mean? That's not clear. My view is very different from the economists who did the study. Since I am chairing this session, I'll go first. Continue reading »