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.
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Department of Economics, Virginia Polytechnic Institute and State University, Blacksburg 24061.
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