The Effect of Deductibles on the Demand for Medical Care Services

Using data on insurance premiums for policies with varying deductibles, together with a distribution of medical expense at a fixed (50) deductible, we estimate the relationship between deductibles and the demand for medical care. We assume that as the deductible changes, the distribution shrinks toward zero in a multiplicative fashion. The results indicate that demand is quite sensitive to variation in a deductible in the region of 50 and becomes steadily less sensitive as the deductible rises above 75, which is consistent with a theoretical model of demand for medical care. The size of the deductible will importantly affect the costs of a national health insurance program. (September 1980)