Paying on the Margin for Medical Care: Evidence from Breast Cancer Treatments

Liran Einav, Amy Finkelstein, Heidi Williams

NBER Working Paper No. 20226
Issued in June 2014, Revised in April 2015
NBER Program(s):Aging, Health Care, Health Economics, Industrial Organization, Law and Economics, Public Economics, Productivity, Innovation, and Entrepreneurship

We present a simple graphical framework to illustrate the potential welfare gains from a “top-up” health insurance policy requiring patients to pay the incremental price for more expensive treatment options. We apply this framework to breast cancer treatments, where lumpectomy with radiation therapy is more expensive than mastectomy but generates similar average health benefits. We estimate the relative demand for lumpectomy using variation in distance to the nearest radiation facility, and estimate that the “top-up” policy increases social welfare by $700-2,500 per patient relative to two common alternatives. We briefly discuss additional tradeoffs that arise from an ex-ante perspective.

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Document Object Identifier (DOI): 10.3386/w20226

Published: Liran Einav & Amy Finkelstein & Heidi Williams, 2016. "Paying on the Margin for Medical Care: Evidence from Breast Cancer Treatments," American Economic Journal: Economic Policy, American Economic Association, vol. 8(1), pages 52-79, February. citation courtesy of

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