The demand for episodes of treatment in the Health Insurance Experiment.

This paper analyzes claims data from the RAND Insurance Experiment, which were grouped into episodes of treatment. The insurance plans in the experiment have coinsurance and a cap on out-of-pocket spending. Using new statistical techniques to adjust for the increased sickliness of those who exceed the cap, the effects of coinsurance on cost per episode and number of episodes are estimated. Cost sharing reduced the number of episodes but had little effect on cost per episode. People in the experiment responded myopically as their current insurance status changed through the year. The price elasticity of spending was about -0.2 throughout the range of coinsurance studied. When data permit it, the study of episodes complements analyses of annual medical spending by revealing more about how decisions to spend are made within the year.