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D. SUPPLY-SIDE-INDUCED DEMAND

Health care providers are both suppliers of the health services and agents for their patients.

How consumers respond to price change with respect to health services strongly depends on how

their physicians advise them about medical treatment. This advice may vary by physician,

reflecting differences in physicians’ understanding of or preferences about medical procedures as

well

as

their

financial

incentives.

It

may

not

reflect

either

full

understanding

of

the

cost

implications for the patient or the patient’s own preferences related to cost.

In the insurance market, insurers are arguably more likely to respond to a change in demand

by altering their product designs and marketing strategies than by simply changing prices for the

same products. As a result, premiums may decline in response to reduced demand, but the value

of coverage may also decline—potentially driving a further reduction in the demand for

coverage.

Research information about either provider-induced demand or supply-side behavioral

changes

in

response

to

a

price

change

is

very

limited.

A

few

studies

have

attempted

to

investigate long-run elasticity (in relation to a short-term estimate), but none have considered

supply-side factors in their models.

63

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