The Elasticity of Demand for Health Care

This report reviews the economic literature on the elasticity of demand forhealth care to provide a framework for understanding the effects of changesin the Military Health System benefit structure on the demand for healthcare services paid for by the DoD. Despite the wide variety of empiricalmethods and data sources used in the literature, the demand for health careis consistently found to be price inelastic, with values centering around-0.17. The demand for some specific medical services such as preventivecare or pharmacy, however, is found to be more price sensitive with valuesaround _0.30. Changes in the price of health care affect health planenrollment choices as well as the demand for services. Studies show thatconsumers may be induced to switch between insurance plans in response tochanges in their relative prices. The report concludes with a discussion ofthe potential effects of four aspects of the FY2001 National DefenseAuthorization Act.