Volume 24, Number 4 (Fall) 1989

Lee, Robert H.. 1989. "Insurance and Medical List Prices." Journal of Human Resources 24(4):689-708.

Although there is a general agreement that insurance has played a central role in medical price inflation, this consensus is not based on convincing empirical evidence. Indeed, the best available estimates assign insurance a minor role. This paper begins by proposing a simple pricing model in which providers' profit maximizing prices depend on the market shares and cost control strategies of different insurers. Data from recent national survey of physicians are then used to estimate fee elasticities for this model and to compare its implications with those of an alternative proposed by Sloan (1982). Respecification plus more recent data dramatically increase the estimated impact of insurance on prices.