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The truth about the RAND HIE

Written By: Jason Shafrin - Nov• 15•07

Recently, there has been much controversy regarding whether or not the RAND Health Insurance Experiment (HIE) results are truly robust. Many blogs have been questioning the results (see here, here and here). One of the major conclusions of the HIE are that higher co-insurance rates lead to lower levels of medical utilization and lower medical cost, but do not have any adverse impact on health outcomes.

A paper by John Nyman (2007) in the Journal of Health Politics, Policy and Law calls these findings into question. He notes that there was differential attrition in the insurance plans with cost-sharing for the patients compared to those with no cost-sharing. If people who became sick in the cost sharing insurance plans elected to drop out of the experiment and seek care from their previous insurance plan, then an attrition bias would occur. This bias would incorrectly deflate the medical utilization of the cost sharing group and thus lead to the erroneous conclusion that more cost sharing causes lower medical utilization patterns.

Nyman’s paper also wisely notes that moral hazard is only a problem with individuals afflicted with a disease. For instance, no matter if one has insurance that would reduce the price of a mastectomy to zero, no one ever elect to have a mastectomy unless they had breast cancer. There are personal costs of the side effects of treatment and time costs which imply that moral hazard will generally only be a problem for those afflicted with a disease. There are exceptions. For cosmetic surgery procedures, individual do not need to be sick to suffer from the problem of moral hazard with insurance.

Nyman’s points are valid, but I believe that the RAND HIE results are robust. First, each RAND HIE participant receive a participation payment each month. Even if the individual had large medical expenses and had to pay a large deductible (capped at $1000, which $4000 in 2007 dollars), the monthly participation fees would add up to more than $1000 so it was in the individual’s best interest to stay in the experiment. Nyman argues that cash flow problems many have affected some participants. If I receive $100 per month for a year, but have $1000 in medical expenses today, I may decide to leave the experiment. Yet because of this participation fee, it seem that this would not be a major problem.

Also, the problem of attrition was recognized in the original RAND HIE. Nyman himself states on his website:”When the RAND data were re-analyzed to account for the differential utilization from attrition, the difference in hospitalizations between free care and all cost-sharing arms was about 19 percent, not 25 percent as has been reported (Manning, Duan, Keeler, 1993, p. 13).” While the magnitude of the cost sharing effect may be somewhat smaller once we take into account attrition, the general finding remains the same: more cost sharing leads to less utilization.

Finally, while RAND is the only large scale RCT that has been conducted, many other studies have shown that increased cost sharing leads to lower medical utilization. Newhouse states that “enormous number of observational studies over many years, in many settings, with many different methodologies, that find utilization of medical services responds to relatively modest cost sharing.” Nyman’s response is that:

“I do not dispute that cost sharing reduces utilization. I think it does and agree that the non-experimental studies that Newhouse et al. (2007) refer to are generally convincing. The issue that I am addressing, however, is whether cost-sharing in the RAND Experiment actually produced a 25 percent reduction in equally effective hospitalizations and whether such a reduction would actually have no effect on health.”

One question you may still have is how is it possible that lower medical utilization leads to the same health outcomes. One possibility is that the moral hazard may have resulted in only the excess use ineffective medicine. It could be the case that much of medicine has little impact in the overall health of the patient and too much treatment can actually harm the patient (see my post on Overtreated). It could be the case that health was measured poorly by the HIE, but Nyman concedes that a “broad spectrum of health status measures” where used in the RAND experiment.

Overall, I do believe Nyman brought up some reasonable points. No experiment is ever perfect…even the RAND HIE. Attrition was a problem and may affect the magnitude of the result. Nevertheless, the conclusions from the RAND HIE remain robust and I believe that the attrition issue was addressed previously.

Can we still conclude that more cost sharing reduces medical utilization? Is moral hazard a problem in health insurance markets? We can still confidently say: YES!

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4 Comments

  1. [...] HIE are that higher co-insurance rates lead to lower levels of medical utilization and […] Read more… Fatal error: Call to undefined function add_submit_it() in [...]

  2. [...] The truth about the RAND HIE Recently, there has been much controversy regarding whether or not the RAND Health Insurance Experiment (HIE) results are truly robust. Many blogs have been questioning the results (see here, here and here). One of the major conclusions of the HIE are that higher co-insurance rates lead to lower levels of medical utilization and […] [...]

  3. [...] Shafrin also gives the study a detailed look. So are the RAND HIE results true? Find out by reading The truth about the RAND HIE posted at the Healthcare [...]

  4. Jason Shafrin says:

    More evidence that increased cost sharing leads to lower medical expenditures is found in a recent paper concerning health insurance in Hangzhou, China. The paper titled “A DID analysis of the impact of health insurance reform in the city of Hangzhou” is written by Jiale Zhang in the latest edition of Health Economics [Volume 16, Issue 12 , Pages 1389 - 1402]