RAND Health Insurance Experiment
Encyclopedia
The RAND Health Insurance Experiment (RAND HIE) was an experimental study of health care
costs, utilization and outcomes in the United States, which assigned people randomly to different kinds of plans and followed their behavior, from 1974 to 1982. As a result, it provided stronger evidence than studies that examine people afterwards who were not randomly assigned. It concluded that cost sharing
reduced "inappropriate or unnecessary" medical care (overutilization
), but also reduced "appropriate or needed" medical care. It did not have enough statistical power to tell whether people who got less appropriate or needed care were more likely to die as a result.
HIE was begun in 1971 by a group led by health economist Joseph Newhouse
and including health service researchers Robert Brook and John Ware; health economists Willard Manning, Emmett Keeler, Arleen Leibowitz, and Susan Marquis; and statisticians Carl Morris
and Naihua Duan. The group set out to answer this question (among others): "Does free medical care lead to better health than insurance plans that require the patient to shoulder part of the cost?".
The team established an insurance company using funding from the then-United States Department of Health, Education, and Welfare. The company randomly assigned 5809 people to insurance plans that either had no cost-sharing, 25%, 50% or 95% coinsurance
rates with a maximum annual payment of $1000. It also randomly assigned 1,149 persons to a staff model health maintenance organization
(HMO), the Group Health Cooperative of Puget Sound
. That group faced no cost sharing
and was compared with those in the fee-for-service system with no cost sharing as well as an additional 733 members of the Cooperative who were already enrolled in it.
(FFS) care. The experiment also demonstrated that cost sharing reduced "appropriate or needed" medical care as well as "inappropriate or unnecessary" medical care. Studies of specific conditions and diseases in the RAND HIE data found (for example) that the decrease in use of medical services had adverse effects on visual acuity and on blood pressure
control.
Newhouse, summarizing the RAND HIE in 2004, wrote "For most people enrolled in the RAND experiment, who were typical of Americans covered by employment-based insurance, the variation in use across the plans appeared to have minimal to no effects on health status. By contrast, for those who were both poor and sick -- people who might be found among those covered by Medicaid or lacking insurance -- the reduction in use was harmful, on average".
Nevertheless, the study opened the way for increased cost-sharing for medical care in the 1980s and 1990s.
The RAND HIE is still referenced in the academic literature as a "gold standard" study in research on the effects of health insurance. For example, in 2007 RAND researchers reviewed the literature published between 1985 and 2006 on prescription drug cost sharing, which included co-payments, tiering, coinsurance, pharmacy benefit caps or monthly prescription limits, formulary
restrictions, and reference pricing. In summarizing 132 articles, they found that the RAND HIE provided the only relevant experimental data; all other studies they reviewed were observational
. They concluded:
Furthermore, the RAND HIE is mentioned regularly in the newsmedia, for example:
Health care
Health care is the diagnosis, treatment, and prevention of disease, illness, injury, and other physical and mental impairments in humans. Health care is delivered by practitioners in medicine, chiropractic, dentistry, nursing, pharmacy, allied health, and other care providers...
costs, utilization and outcomes in the United States, which assigned people randomly to different kinds of plans and followed their behavior, from 1974 to 1982. As a result, it provided stronger evidence than studies that examine people afterwards who were not randomly assigned. It concluded that cost sharing
Cost sharing
In health care, cost sharing occurs when patients pay for a portion of health care costs not covered by health insurance. Examples include copays, deductibles and coinsurance....
reduced "inappropriate or unnecessary" medical care (overutilization
Overutilization
Overutilization refers to medical services that are provided with a higher volume or cost than is appropriate. In the United States, where health care costs are the highest as a percentage of GDP, overutilization is the predominant factor in its expense...
), but also reduced "appropriate or needed" medical care. It did not have enough statistical power to tell whether people who got less appropriate or needed care were more likely to die as a result.
Methods
The RANDRAND
RAND Corporation is a nonprofit global policy think tank first formed to offer research and analysis to the United States armed forces by Douglas Aircraft Company. It is currently financed by the U.S. government and private endowment, corporations including the healthcare industry, universities...
HIE was begun in 1971 by a group led by health economist Joseph Newhouse
Joseph Newhouse
Joseph P. Newhouse is an American economist and the John D. MacArthur Professor of Health Policy and Management at Harvard University, as well as the Director of the Division of Health Policy Research and of the Interfaculty Initiative on Health Policy...
and including health service researchers Robert Brook and John Ware; health economists Willard Manning, Emmett Keeler, Arleen Leibowitz, and Susan Marquis; and statisticians Carl Morris
Carl Morris (statistician)
Carl Morris is a professor in the Statistics Department of Harvard University and spent several years as a researcher for the RAND Corporation working on the RAND Health Insurance Experiment.-Chronology:...
and Naihua Duan. The group set out to answer this question (among others): "Does free medical care lead to better health than insurance plans that require the patient to shoulder part of the cost?".
The team established an insurance company using funding from the then-United States Department of Health, Education, and Welfare. The company randomly assigned 5809 people to insurance plans that either had no cost-sharing, 25%, 50% or 95% coinsurance
Coinsurance
Co-insurance is an insurance-related term that describes a splitting or spreading of risk among multiple parties.-In the United States:In the US insurance market, coinsurance is the joint assumption of risk between the insurer and the insured...
rates with a maximum annual payment of $1000. It also randomly assigned 1,149 persons to a staff model health maintenance organization
Health maintenance organization
A health maintenance organization is an organization that provides managed care for health insurance contracts in the United States as a liaison with health care providers...
(HMO), the Group Health Cooperative of Puget Sound
Group Health Cooperative
Group Health Cooperative, more commonly known as Group Health, is a Seattle, Washington based nonprofit healthcare organization. Established in 1947, it today provides coverage and care for about 700,000 people in Washington and Idaho and is one of the largest private employers in Washington...
. That group faced no cost sharing
Cost sharing
In health care, cost sharing occurs when patients pay for a portion of health care costs not covered by health insurance. Examples include copays, deductibles and coinsurance....
and was compared with those in the fee-for-service system with no cost sharing as well as an additional 733 members of the Cooperative who were already enrolled in it.
Findings
An early paper with interim results from the RAND HIE concluded that health insurance without coinsurance "leads to more people using services and to more services per user," referring to both outpatient and inpatient services. Subsequent RAND HIE publications "rule[d] out all but a minimal influence, favorable or adverse, of free care for the average participant" but determined that a "low income initially sick group assigned to the HMO... [had a] greater risk of dying" than those assigned to fee-for-serviceFee-for-service
Fee-for-service is a payment model where services are unbundled and paid for separately. In health care, it gives an incentive for physicians to provide more treatments because payment is dependent on the quantity of care, rather than quality of care...
(FFS) care. The experiment also demonstrated that cost sharing reduced "appropriate or needed" medical care as well as "inappropriate or unnecessary" medical care. Studies of specific conditions and diseases in the RAND HIE data found (for example) that the decrease in use of medical services had adverse effects on visual acuity and on blood pressure
Hypertension
Hypertension or high blood pressure is a cardiac chronic medical condition in which the systemic arterial blood pressure is elevated. What that means is that the heart is having to work harder than it should to pump the blood around the body. Blood pressure involves two measurements, systolic and...
control.
Newhouse, summarizing the RAND HIE in 2004, wrote "For most people enrolled in the RAND experiment, who were typical of Americans covered by employment-based insurance, the variation in use across the plans appeared to have minimal to no effects on health status. By contrast, for those who were both poor and sick -- people who might be found among those covered by Medicaid or lacking insurance -- the reduction in use was harmful, on average".
Criticisms and legacy
The RAND HIE was criticized in several ways:- Some authors questioned the generalizability of comparisons of HMO and FFS care since data on the former were based on a "single, relatively small but well-managed" HMO in Seattle.
- One 2007 article suggested that the "large number of participants who voluntarily dropped out of the costsharing arms of the experiment" could have invalidated the RAND HIE's findings. In response, Newhouse and colleagues described the argument as "implausible".
- The RAND HIE did not study people without health insurance, so it could not determine how the presence or absence of health insurance affects health.
Nevertheless, the study opened the way for increased cost-sharing for medical care in the 1980s and 1990s.
The RAND HIE is still referenced in the academic literature as a "gold standard" study in research on the effects of health insurance. For example, in 2007 RAND researchers reviewed the literature published between 1985 and 2006 on prescription drug cost sharing, which included co-payments, tiering, coinsurance, pharmacy benefit caps or monthly prescription limits, formulary
Formulary (pharmacy)
At its most basic level, a formulary is a list of medicines. Traditionally, a formulary contained a collection of formulas for the compounding and testing of medication . The main function of formularies today is to specify which medicines are approved to be prescribed under a particular contract...
restrictions, and reference pricing. In summarizing 132 articles, they found that the RAND HIE provided the only relevant experimental data; all other studies they reviewed were observational
Observational study
In epidemiology and statistics, an observational study draws inferences about the possible effect of a treatment on subjects, where the assignment of subjects into a treated group versus a control group is outside the control of the investigator...
. They concluded:
Increased cost sharing is associated with lower rates of drug treatment, worse adherence among existing users, and more frequent discontinuation of therapy. For each 10% increase in cost sharing, prescription drug spending decreases by 2% to 6%, depending on class of drug and condition of the patient. The reduction in use associated with a benefit cap, which limits either the coverage amount or the number of covered prescriptions, is consistent with other cost-sharing features. For some chronic conditions, higher cost sharing is associated with increased use of medical services, at least for patients with congestive heart failure, lipid disorders, diabetes, and schizophrenia. While low-income groups may be more sensitive to increased cost sharing, there is little evidence to support this contention.
Furthermore, the RAND HIE is mentioned regularly in the newsmedia, for example:
- "Evidence from the RAND Experiment indicates that most of the expenditure-reducing effects of health-plan deductibles occur at low levels of deductibles."
- "A classic experiment by Rand researchers from 1974 to 1982 found that people who had to pay almost all of their own medical bills spent 30 percent less on health care than those whose insurance covered all their costs, with little or no difference in health outcomes. The one exception was low-income people in poor health, who went without care they needed."
- "...the Rand health insurance experiment found that patients cut back equally on both superfluous and necessary visits when asked for small co-payments."
Further reading
- Newhouse JP. Free for all? Lessons from the RAND Health Insurance Experiment. Cambridge, MA: Harvard University Press, 1993. ISBN 0-674-31846-3. [Paperback edition, 1996: ISBN 0-674-31914-1.]
External links
- Keeler EB. Effects of cost sharing on use of medical services and health. Medical Practice Management 1992;8:317-321. [Summarizes major findings of the RAND Health Insurance Experiment.]
- Normand C. Views and reviews. Free for All: Lessons from the RAND Health Insurance Experiment. Br Med J 1994;308:1724-1725. [Book review. Although "the effects of reduced use of health services on health are at most small," an exception to this general finding "is that reduced use by poorer people did have a measurable and harmful effect on health."]
- RAND's Health Insurance Experiment (HIE). Last modified 2008 Aug 25. Retrieved 2008 Nov 11. [From RAND Corporation.]