Insurance Glossary

The RAND Health Insurance Experiment (RAND HIE) was a comprehensive study of health care cost, utilization and outcome in the United States. It is the only randomized study of health insurance, and the only study which can give definitive evidence as to the causal effects of different health insurance plans. Most health economics studies are observational, and can only give associational evidence. Although the study was conducted in the 1970's and early 1980's, the results are still highly relevant, since RAND HIE is the only study which can make causal statements.

In 1971, a RAND group, led by health economist Joe Newhouse and including statistician Carl Morris, established an insurance company using funding from the then-United States Department of Health, Education, and Welfare. The company insured 5809 people, randomly assigned to insurance plans that either had no cost-sharing, 25, 50 or 95% copayment rates with a maximum annual payment of $1000.

The study found higher copayment rates reduced spending because people did not seek care as frequently; the care which was not consumed by the higher cost-sharing group was equally necessary and unnecessary care. In the general study group, there was no measurable difference in health states between the groups, but for subgroups such as the chronically ill, chronic illnesses such as diabetes and high blood pressure were not as well controlled among the high cost-sharing group than among the low cost-sharing groups.

The study opened the way for increased cost-sharing for medical care in the 1980's and 1990's.

See _Free for All_ by Joe Newhouse and the RAND Health Insurance Experiment group for the full details of the study, design, results, and discussion. It is a well-written book.