I won’t pretend to have a comprehensive answer to that question; it’s a pretty big one. But I do think the best evidence we have indicates that when health insurance comes with high deductibles and co-pays, consumers do on average make rational health care choices by reducing their health care expenses with almost no adverse health effects. This is the result of the famous $50 million RAND Health Insurance Experiment, a study which is old news to people who read about health care policy (it’s so famous it even has it’s own Wikipedia entry!).

Or so I thought anyway. Economist Paul Ginsburg seems to disagree, and finds the state of the literature ambiguous:

…many of those companies will rely on what she described as “the tried-and-true method” — passing along more of the costs to employees, in the form of higher deductibles and co-payments, in order to reduce overall premiums.

The public policy goal of the tax, in theory, is to have everyone spend less on medical care, even if it means using it less.

“We know people will use less care under such plans,” said Paul Ginsburg, president of the Center for Studying Health System Change, a nonpartisan group.

What is not so clear, Mr. Ginsburg said, is whether people will make — or be able to make — rational choices between treatments that are not particularly effective and treatments that may help them from becoming sicker later.

Mr.Ginsburg is a frequent author of papers in Health Affairs and a noted expert on the health care policy, so when he makes this claim part of me suspects my disagreement may be based on evidence I am unaware of. I skimmed some of his past articles looking for clues as to what studies he may be referencing but have found none yet.

The CBO at least seems to agree with me. In a paper on price transparency in health care (H.T. Tyler Cowen) they say

The RAND Health Insurance Experiment, conducted in the 1970s and 1980s, showed that individuals purchase less health care when faced with greater cost sharing and that the reduction in health services had little impact on their health. Although the study did not consider the question of price transparency, its results suggest that individuals who pay for health care on their own are responsive to out-of-pocket payments.

Clearly, the evidence shows consumers can make rational decisions about seeking effective versus ineffective medical care. Perhaps Ginsburg is referring to selecting among treatments once a patient has decided to seek some medical care, which the next line in the CBO report refers to as an unsettled question:

At the same time, the evidence indicated that the primary effect was on whether individuals sought care for a medical condition; once they went to a doctor, subsequent spending per person was similar in the different cost-sharing arrangements.

If this is what he meant, his statement seems consistent with the RAND HIE. However, that is a very selective representation of the literature by the authors of the article Ginsburg was quoted in. The article is addressing the “public policy goal of… hav[ing] everyone spend less on medical care, even if it means using it less”. The answer to whether consumers can do this without adverse health effects, at least to the best of my knowledge,  should be  “yes, the evidence suggests they can”, not a technically-correct-but-missing-the-bigger-point statement about selecting amongst treatments. Then again, perhaps Dr.Ginsburg and the article’s author, Reed Abelson, are aware of evidence that I am not.  Dr.Ginsburg is the expert, so this is certainly a possibility.

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