Volume 21, Number 2 (Spring) 1986
Welch, W. P. 1986. "The Elasticity of Demand for Health Maintenance Organizations." Journal of Human Resources 21(2):252-266.
This paper analyzes a national sample of firms where employees faced a choice between a Health Maintenance Organization (HMO) and a conventional insurer such as Blue Cross. A regression analysis is specified as a partial adjustment model and a logit functional form. The long-run price elasticity of demand for HMOs is estimated to be -0.6. To the extent that employers pass on increases in the total premium, the price elasticities facing insurers are higher. Furthermore, the demand for HMOs is a negative function of the copayment charged by the HMO for an office visit.
The author is a health economist at the Office of Management and Budget. The opinions expressed here in no way represent the position of the Office of Management and Budget. This research was supported by grant number HSO5133 from the National Center for Health Services Research, OASH. The author wishes to thank the Bureau of Labor Statistics for augmenting the public use data tapes and John Thompson of the BlS for many hours of assistance in understanding those tapes. The author also thanks Roger Feldman, Jon Gabel, Mark Kamlet, Will Manning, and Jamie Reuter for helpful comments.
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