by Alex Tabarrok of Marginal Revolution
No, not Ayn Rand, the RAND experiment on health care. The RAND experiment randomly assigned people to different health plans and one of the big findings was that cost sharing reduced use of health care but had little effect on health outcomes. My colleague, Robin Hanson, likes to use this as a club to argue that we should cut medical spending in half.
Even randomized experiments have problems, however, and it turns out that there was a lot of attrition in the RAND experiment. A Healthy Blog quotes from a new paper in the October 2007 issue of the Journal of Health Politics, Policy and Law, by Dr. John Nyman of the University of Minnesota (alas not online).
Of the various responses to cost sharing that were observed in the participants of the RAND HIE, by far the strongest and most dramatic was in the relative number of RAND participants who voluntarily dropped out of the study over the course of the experiment. Of the 1,294 adult participants who were randomly assigned to the free plan, 5 participants (0.4 percent) left the experiment voluntarily during the observation period, while of the 2,664 who were assigned to any of the cost-sharing plans, 179 participants (6.7 percent) voluntarily left the experiment. This represented a greater than sixteenfold increase in the percentage of dropouts, a difference that was highly significant and a magnitude of response that was nowhere else duplicated in the experiment.
What explains this? The explanation that makes the most sense is that the dropouts were participants who had just been diagnosed with an illness that would require a costly hospital procedure. … If they dropped out, their coverage would automatically revert to their original insurance policies, which were likely to cover major medical expenses (such as hospitalizations) with no copayments … As a result of dropping out, these participants' inpatient stays (and associated health care spending) did not register in the experiment, and it appeared as if participants in the cost-sharing group had a lower rate of inpatient use. … the cost-sharing participants who remained exhibited a lower rate of inpatient use than free FFS participants, not because they were responding to the higher coinsurance rate by forgoing frivolous hospital care but instead because they did not need as much hospital care, since many of those who became ill and needed hospital care had already dropped out of the experiment before their hospitalization occurred. …
Hat tip to The HealthCare Economist.
http://www.marginalrevolution.com/marginalrevolution/2007/10/was-rand-wrong.html
RAND Hits Back
Joseph Newhouse and the other RAND researchers have responded to Nyman's paper arguing that attrition bias biased their results. The RAND researchers were aware of these issues and in fact designed the experiment to avoid incentives for non-random attrition. Most importantly, the basic RAND findings have now been replicated in many other studies (smaller and not always experiments but the results are solid). I call it a knockout for RAND.
It's a credit to the many insightful commentators on Marginal Revolution that many of these points were made already in the comments on my original post.
Thanks to Jason Furman for the pointer.
http://www.marginalrevolution.com/marginalrevolution/2007/10/rand-hits-back.html
