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The RAND Health Insurance Experiment, Three Decades Later

Dec 2012
Working Paper
12-007
By  Aviva Aron-Dine, Liran Einav, Amy Finkelstein
We re-present and re-examine the analysis from the famous RAND Health Insurance Experiment from the 1970s on the impact of consumer cost sharing in health insurance on medical spending. We begin by summarizing the experiment and its core findings in a manner that would be standard in the current age. We then examine potential threats to the validity of a causal interpretation of the experimental treatment effects stemming from different study participation and differential reporting of outcomes across treatment arms. Finally, we re-consider the famous RAND estimate that the elasticity of medical spending with respect to its out-of-pocket price is -0.2, emphasizing the challenges associated with summarizing the experimental treatment effects from non-linear health insurance contracts using a single price elasticity.