Choosing Health versus Wealth: A Laboratory Survey
- Presenter:
Chair: Curtis Florence; Discussant: Reed Johnson Mon June 5, 2006 15:30-17:00 Room 309
Rationale: We wish to develop a technique for revealing the monetary value that individuals place on stochastic health. Our methodology seeks a way to circumvent the tradeoff between moral hazard and risk-bearing in health care markets. Aside from this principal question, we wish to develop a prototype for a field experiment and suggest a possible structure for health insurance contracts.
Objectives: We wish to answer the following questions: How much are individuals willing to accept in lieu of medical treatments with a low probability of success? Is that willingness systematically related to the probability? Do they place higher value on loved ones than on themselves or on total strangers? Does fear of regret play a role in such choices?
Methodology: We use a contingent valuation method to estimate individuals’ willingness to accept cash in lieu of a treatment that has a low probability of success. We offer healthy individuals a choice of Policy T (full insurance coverage of an expensive treatment) or Policy C (a large, unfettered lump-sum cash indemnity upon diagnosis). For simplicity, we concern ourselves only with a single hypothetical medical contingency. With Policy C, consumers bear the marginal cost of a high-cost treatment without suffering the risk of catastrophic financial loss. In our survey, the disease and policies were abstract and hypothetical and the sample of subjects relatively small.
Results: Subjects choose the treatment policy more often when medicine is more efficacious. They choose the treatment policy most often for loved ones, less often for themselves, and least of all for anonymous strangers. Strikingly, subjects choose the treatment policy more often when ex post regret over the choice is likeliest, even when no differences exist in treatment efficacy. The responses were strongly consistent internally and comported well with economic logic. Despite the small sample, the results were highly significant. While healthy, the subjects were capable of signaling the marginal value they placed on a small probability of life. They were able to do so consistently over long lists of random scenarios.
Conclusions: The results suggest a low-cost methodology for estimating health-wealth tradeoffs and a potential means of inducing consumers to self-limit use of high-cost, low-benefit treatments. The results present several puzzles related to the valuation that individuals place on their own health versus the health of loved ones or strangers.
