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I. INTRODUCTION

Despite changes in health care products and public policy intended to reduce cost and

encourage coverage, the cost of health care and health insurance continues to grow, as does the

number of uninsured. In 2004, the United States spent $6,280 per capita on health care—

approximately 50 percent more than any other country in the world—largely related to higher

prices for medical care (Smith et al. 2006; Anderson et al. 2005). At the same time, the percent

of the nonelderly population without health insurance coverage reached nearly 18 percent

(Fronstin 2005).

Facing these dual problems, both public policymakers and leaders in the private sector are

keenly interested in using price incentives to increase the purchase of insurance coverage and to

constrain unnecessary or inappropriate use of care. For example, various proposals would use

tax incentives to encourage employer offer of coverage, employee take up, or the purchase of

individual health insurance. Some private insurers have introduced high-deductible health plans

in an effort to make available lower-priced insurance options. Public programs such as Medicare

and State Children’s Health Insurance Program (SCHIP) increasingly use cost sharing in an

effort to reduce the use of care that is of less value to consumers.

While improving access to adequate and appropriate health care remains among the top

priorities of health policy makers, the information available to support development and analysis

of policy proposals lags far behind. In particular, some of the most critical information—

measures of consumer responsiveness to health service prices—dates from the Health Insurance

Experiment (HIE) conducted by the RAND Corporation in the 1970s. More recent estimates

suggest the demand for some major components of health care spending—such as prescription

drugs and mental health care—may have changed significantly in the last 30 years. Furthermore,

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