Description: Labor-Public-Applied Economics Workshop

Location: 368A Heady Hall

Contact: John Winters

Title: The Effect of Out-of-Pocket Maximum on Healthcare Utilization

Abstract: This research examines the effect of maximum out-of-pocket (OOP) on health care utilization. Public health insurance programs generally include cost-sharing mechanisms—such as copayment and coinsurance—to prevent moral hazard. However, these measures can discourage the use of essential medical services, especially among financially vulnerable populations. The out-of-pocket (OOP) maximum, which limits the total annual expenditures on shared costs, helps protect individuals from excessive financial burden and encourages access to necessary healthcare. Using Korean Health Panel (KHP) data and a Difference-in-Differences (DID) approach with multi-valued treatments, I examine how changes in the OOP maximum policy affect health care utilization. The study finds that higher OOP maximums lead to reduced use of out-patient and inpatient services, while their effect on urgent care utilization is limited and insignificant. In addition, low-income households are more elastic to variations in the OOP maximum. Differences in the proportion of medical expenses exceeding the OOP maximum among income groups may explain the varying sensitivity to OOP changes across these groups. My findings also reveal that the elasticity of individuals’ healthcare utilization with respect to the OOP maximum diminishes as the risk of their chronic conditions intensifies.