Non-linear price schedules, demand for health care and response behavior

Posted by D. Daniel Sokol

Helmut Farbmacher (Munich Center for the Economics of Aging) and Joachim Winter (University of Munich, Department of Economics) discuss Non-linear price schedules, demand for health care and response behavior

ABSTRACT: When health insurance reforms involve non-linear price schedules tied to payment periods (for example, a quarter or a year), the empirical analysis of its effects has to take the within-period time structure of incentives into account. The analysis is further complicated when demand data are obtained from a survey in which the reporting period does not coincide with the payment period. We illustrate these issues using as an example a health care reform in Germany which imposed a perquarter fee of E10 for doctor visits and additionally set an out-of-pocket maximum. This co-payment structure results in an effective spot price for a doctor visit which decreases over time within each payment period. Using this variation, we find a substantial effect of the new fee, in contrast to earlier studies of this reform. Overall, the probability of visiting a physician decreased by around 2.5 percentage points in response to the new fee for doctor visits. We verify the key assumptions of our approach using a separate data set of insurance claims in which the reporting period effects are absent by construction.