Was RAND wrong?

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.


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