econobros: that’s the end of the chain!

In one of my graduate courses, I taught the Rand health insurance experiment. It’s a famous study where some people were randomly given health insurance coverage to see how it affected access and health. The bottom line is that using insurance to decrease the costs of health via low co-payment helps with access, but not with health. In the discussion, I mentioned how this result surprises people. Then, one of my BGS* said the following, paraphrased by me:

The reason this might be surprising from an economic perspective is that social behavior is a question of relative prices. Obviously, purchasing health care would become more common if it were made easier. However, health is often beyond the ability of individuals to directly influence. Health might be due to genetic factors, social class, occupation, and other processes that are not easily countered by a visit to a doctor. Health is the result of a long chain of events. These policy interventions only happen at the end, so the modest effects shouldn’t be surprising.

Now, we did discuss the famous finding that the intervention helped with low-income individuals. But this supports the “end of the chain” view of health. For most people, they already have the resources and environment that will help with prevention of chronic health problems (e.g., malnutrition in youth) or managing short term issues that could become long term issues (e.g., avoiding jobs that might lead to injury). But low income individuals don’t have the resources for basic health self-management and even simple interventions might have a big impact. My take home? Think about the chain and the closer you are to the end, the more focused the policy effects will be, if it exists at all.

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Written by fabiorojas

June 5, 2014 at 12:01 am

Posted in economics, fabio, research

2 Responses

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  1. I hope you have more such BGS’s in your class! … ‘chain of past events’ is a nice way to frame variations in underlying propensity, without going into non-pc territory, where economists go way too often :)



    June 7, 2014 at 7:08 am

  2. Fabio, I don’t think the RAND study is really the modern take on this–Chandra et al (2010) found significant hospitalization offsets as a result of higher prescription drug copayments (ie higher copays led to more hospitalizations).

    I understand your student’s point. But IMO it’s missing two things: 1) the most common chronic diseases are very manageable but are often poorly managed; and 2) ‘end of the chain’ policies like increasing access most likely have greater capacity to be broad and simpler to implement than policies that try to hit the ‘beginning of the chain.’ Expanding access to health insurance is hard but not as hard as trying to fix social behavior!!



    June 8, 2014 at 6:54 am

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