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
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
Research information about either provider-induced demand or supply-side behavioral
investigate long-run elasticity (in relation to a short-term estimate), but none have considered
supply-side factors in their models.