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demand for another. In general, the cross-price elasticity is negative for substitutes and positive

for complements.

Compared to the literature estimating own-price elasticity, fewer studies have estimated

cross-price elasticity for either health insurance or health care services. Most of these studies

address the demand for specific types of medical services such as nursing home care (with

respect to the price of substitutes, such as home care or adult foster care) or orthodontic services

(with respect to the price of complementary basic dental care).

Some studies consider “switching” behavior among private health insurance plans with

comparable benefits, but they typically examine only the probability of switching out of a plan in

response to an increase in the plan’s own price. Consequently, we include these studies in the

discussion of own-price elasticity.

3.

Income Elasticity

The income elasticity of demand measures consumer response to a change in their level of

income,

all

else

(including

price)

being

equal.

However,

because

all

studies

that

provide

estimates of income elasticity are observational, the income elasticity of demand for either health

insurance or health care services is measured as differences in demand attributable to differences

(not changes) in income. In general, products that are considered necessities—such as health

care—are income-inelastic; that is, demand for the product is relatively stable, despite

differences in income. In contrast, the demand for discretionary services (e.g., some cosmetic

surgeries)

may

be

quite

income-elastic.

Relatively

few

studies

have

estimated

the

income

elasticity of demand for either health insurance or health care services.

B. FACTORS THAT CONTRIBUTE TO VARIATION IN ELASTICITY ESTIMATES

The literature measuring the elasticity of demand for health insurance and health care

services is voluminous. It offers a confusing array of estimates for policymakers seeking to 6

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