The Demand Elasticity of Health Care Spending for Low-Income Individuals

Please note the change in venue for this week only.

Low-income individuals are typically the most price sensitive segment of the market, but this is not true in the market for health care services. I show that low-income individuals have a smaller demand elasticity of medical spending with respect to coinsurance, relative to their higher income counterparts, using data from the RAND Health Insurance experiment. The null effect is driven by disproportion-ate share of low-income individuals who consume zero health care. The key insight is that low-income individuals may optimally consume zero health care because, when marginal utility of consumption is high, forgoing non-medical consumption becomes very costly.