Thursday, January 24, 2013

The RAND Health Insurance Experiment

The RAND Health Experiment, carried out between 1974 and 1981, randomly assigned more than 2,000 families to different health insurance plans. These plans differed between free care and almost no co-payment. The project pioneered the way for field experiments in economics and Aviva Aron-Dine, Liran Einav, and Amy Finkelstein present a detailed summary and re-examination of the findings in a new NBER working paper, "The RAND Health Insurance Experiment, Three Decades Later":
This landmark and pioneering study was uniquely ambitious, remarkably sophisticated for its time, and entrepreneurial in the design and implementation of the then-new science of randomized experiments in the social sciences.

The importance of the findings from this large field-experiment cannot be overstated:
one of the central contributions of the RAND experiment is robust: the rejection of the null hypothesis that health spending does not respond to the out-of-pocket price
In other words, people react to costs, even when they consider their own health. (Remember, this was an almost revolutionary finding some 30 years ago!)

To quote the working paper once more, "it seems useful to remind a younger generation of economics of the details, and limitations, of the original work." Do read this.


Nicholas James said...

At that time people were not interested in health insurance that's what made the RAND experiment successful, nowadays the situation is different, people will get the insurance so no need for such kind of programs.

rené böheim said...

On the contrary. We need and we will see much more of such programs, field experiments are an extremely clever way to learn things: see Levitt and List, "Field Experiments in Economics: The Past, The Present, and The Future", for an introduction to the topic.

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