Correcting for Transitory Effects in RCTs: Application to the RAND Health Insurance Experiment

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Title: Correcting for Transitory Effects in RCTs: Application to the RAND Health Insurance Experiment
Authors: Devereux, Kevin
Balesh Abadi, Mona
Omran, Farah
Permanent link: http://hdl.handle.net/10197/10635
Date: Apr-2019
Online since: 2019-05-23T09:52:17Z
Abstract: The long run price elasticity of healthcare spending is critically important to estimating the cost of provision. However, temporary randomized controlled trials may be confounded by transitory effects. This paper shows evidence of a 'deadline effect' – a spike in spending in the final year of the program – among participants of the RAND Health Insurance Experiment, long considered the definitive RCT in the field. The deadline effect is economically and statistically significant, with power to identify coming from random allocation to three- or five-year enrolment terms. The deadline effect interacts with the price elasticity: participants who face lower coinsurance rates show larger spending spikes. Crucially, controlling for the price-deadline interaction yields significantly smaller estimates of the price elasticity in non-deadline years, which we argue is a better approximation for the long run elasticity. This has important implications for public finance and the design of private/temporary subsidy programs.
Type of material: Working Paper
Publisher: University College Dublin. School of Economics
Series/Report no.: UCD Centre for Economic Research Working Paper Series; WP19/10
Copyright (published version): 2019 the Authors
Keywords: Health insuranceMoral hazardPublic healthRCTs
Language: en
Status of Item: Not peer reviewed
Appears in Collections:Economics Working Papers & Policy Papers

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