Evaluating welfare losses in the health care market.
According to traditional welfare analysis, consumers facing a price increase forego consumption of the least valued units of a commodity. Studies, such as the Rand HIE, show that patients decrease their consumption of all types of health care when faced with a price increase for health care. From this observation, Thomas Rice (1992) concludes that traditional welfare analysis is inadequate for evaluating insurance-related welfare losses in health care. In this note, I argue that it is not traditional welfare analysis which is inadequate, but the method of assigning marginal valuations to units of health care.
Department of Economics, Virginia Polytechnic Institute and State University, Blacksburg 24061.
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D003256:Community Participation / Q000191:economics; D003657:Decision Making; D017048:Health Care Costs / Q000706:statistics & numerical data; D006291:Health Policy / Q000191:economics; D006300:Health Services Misuse / Q000191:economics; D006301:Health Services Needs and Demand / Q000191:economics*; D006302:Health Services Research / Q000379:methods*; D007348:Insurance, Health / Q000706:statistics & numerical data; D017059:Models, Econometric; D012946:Social Welfare / Q000191:economics*; D014481:United States