Zarek C. Brot-Goldberg, Amitabh Chandra, Ben Handel (Gilbert Center), Jon Kolstad (Gilbert Center)

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Measuring consumer responsiveness to medical care prices is a central issue in health economics and a key ingredient in the optimal design and regulation of health insurance markets. We leverage a natural experiment at a large self-insured firm that required all of its employees to switch from an insurance plan that provided free health care to a non-linear, high deductible plan. The switch caused a spending reduction between 11.8%-13.8% of total firm-wide health spending. We decompose this spending reduction into the components of (i) consumer price shopping (ii) quantity reductions and (iii) quantity substitutions and find that spending reductions are entirely due to outright reductions in quantity. We find no evidence of consumers learning to price shop after two years in high-deductible coverage. Consumers reduce quantities across the spectrum of health care services, including potentially valuable care (e.g. preventive services) and potentially wasteful care (e.g. imaging services). To better understand these changes, we study how consumers respond to the complex structure of the high-deductible contract. Consumers respond heavily to spot prices at the time of care, reducing their spending by 42% when under the deductible, conditional on their true expected end-of-year price and their prior year end-of-year marginal price. There is no evidence of learning to respond to the true shadow price in the second year post-switch. This article was featured in media outlets including Vox , New York TimesCBS MoneylineForbes,,NBER DigestConversationCenter for Healthcare Journalism, and Kaiser Health News.