RAND Health Insurance Experiment

The RAND Health Insurance Experiment (RAND HIE) was an experimental study from 1974 to 1982 of health care costs, utilization and outcomes in the United States, which assigned people randomly to different kinds of plans and followed their behavior. Because it was a randomized controlled trial, it provided stronger evidence than the more common observational studies and concluded that cost sharing reduced "inappropriate or unnecessary" medical care (overutilization) but also reduced "appropriate or needed" medical care.


The RAND 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?"[1]

The team established an insurance company using funding from the United States Department of Health, Education, and Welfare. The company randomly assigned 5809 people to insurance plans that had no cost sharing, 25%, 50% or 95% coinsurance rates with a maximum annual payment of $1000.[2] It also randomly assigned 1,149 persons to a staff model health maintenance organization (HMO), the Group Health Cooperative of Puget Sound.[3][4] 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.[3]


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.[5] Subsequent RAND HIE publications "rule[d] out all but a minimal influence, favorable or adverse, of free care for the average participant"[6] 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-service (FFS) care.[7] The experiment also demonstrated that cost-sharing reduced "appropriate or needed" medical care as well as "inappropriate or unnecessary" medical care.[2][8] 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[9] and on blood pressure control.[10] A Rand summary said, "The projected effect was about a 10 percent reduction in mortality for those with hypertension."[11]

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."[12]

Criticisms and legacyEdit

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.[13]
  • 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.[14] In response, Newhouse and colleagues described the argument as "implausible".[15]
  • The RAND HIE did not study people without health insurance and so could not determine how the presence or absence of health insurance affects health.[16]

Nevertheless, the study opened the way for increased cost sharing for medical care in the 1980s and 1990s.[citation needed]

The RAND HIE is still referenced in the academic literature as a "gold standard" study in research on the effects of health insurance.[16] 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.[17] In summarizing 132 articles, they found that the RAND HIE provided the only relevant experimental data; all other studies they reviewed were observational.[17] 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.[17]

Furthermore, the RAND HIE is mentioned regularly in the newsmedia:

  • "Evidence from the RAND Experiment indicates that most of the expenditure-reducing effects of health-plan deductibles occur at low levels of deductibles."[18]
  • "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."[19]
  • "...the Rand health insurance experiment found that patients cut back equally on both superfluous and necessary visits when asked for small co-payments."[20]

Oregon Health StudyEdit

In 2008, for reasons of cost, Oregon's Medicaid agency accepted 10,000 uninsured low-income adults into its insurance program based on a lottery with 89,824 applicants. In the Oregon Health Study, Newhouse and others tracked the effects on those who were accepted and rejected. They found that health insurance improved people's health and lives generally, but people also spent more money on health care.[21]

According to economist Katherine Baicker, the study "put to rest two incorrect arguments."[22]

New data regarding the Oregon experiment shows that while it was effective to reduce out-of-pocket payment by the beneficiaries and increase their financial security, it did not lead to objective improvements in blood sugar, blood pressure, or some other metrics. The findings contradicted the earlier results, which had shown greater effects upon people's health.[23] However, these results are based on two years of data, and longer follow-up might reveal different results. The study did indicate a significant improvement in rates of depression in the two-year window.[24]


  1. ^ Brook, RH; Ware, JE; Rogers, WH; Keeler, EB; Davies, AR; Sherbourne, CA; et al. (1984). The effect of coinsurance on the health of adults. Results from the RAND Health Insurance Experiment (PDF) (Report). Santa Monica, CA: RAND Corporation Report R-3055-HH. ISBN 0-8330-0614-2. ["An earlier version of the present report appeared in the December 8, 1983, issue of The New England Journal of Medicine (Vol. 309, pp. 1426-1434)."]
  2. ^ a b Manning WG, Newhouse JP, Duan N, Keeler EB, Benjamin B, Leibowitz A, et al. Health insurance and the demand for medical care. Evidence from a randomized experiment. Santa Monica, CA: RAND Corporation, 1988. Report R-3476-HHS. ISBN 0-8330-0864-1. ["An abridged version of this report... was published in The American Economic Review, June 1987."]
  3. ^ a b Manning WG, Leibowitz A, Goldberg GA, Newhouse JP, Rogers WH. A controlled trial of the effect of a prepaid group practice on the utilization of medical services. Santa Monica, CA: RAND Corporation, 1985. Report R-3029-HHS. ISBN 0-8330-0679-7. ["An abridged version of this report was published in the New England Journal of Medicine, June 7, 1984."]
  4. ^ Wagner EH, Bledsoe T. The Rand Health Insurance Experiment and HMOs. Med Care 1990;28:191-200.
  5. ^ Newhouse JP, Manning WG, Morris CN, Orr LL, Duan N, Keeler EB, et al. Some interim results from a controlled trial of cost sharing in health insurance. N Engl J Med 1981;305:1501-7.
  6. ^ Brook RH, Ware JE Jr, Rogers WH, Keeler EB, Davies AR, Donald CA, et al. Does free care improve adults' health? Results from a randomized controlled trial. N Engl J Med 1983;309:1426-1434.
  7. ^ Ware JE Jr, Brook RH, Rogers WH, Keeler EB, Davies AR, Sherbourne CD, et al. Comparison of health outcomes at a health maintenance organisation with those of fee-for-service care. Lancet 1986;1(8488):1017-22.
  8. ^ Lohr KN, Brook RH, Kamberg CJ, Goldberg GA, Leibowitz A, Keesey J, et al. Use of medical care in the Rand Health Insurance Experiment. Diagnosis- and service-specific analyses in a randomized controlled trial. Med Care 1986;24:S1-S87.
  9. ^ Lurie N, Kamberg CJ, Brook RH, Keeler EB, Newhouse JP. How free care improved vision in the health insurance experiment. Am J Public Health 1989;79:640-642. [Erratum, Am J Public Health 1989;79:1677.]
  10. ^ Keeler EB, Brook RH, Goldberg GA, Kamberg CJ, Newhouse JP. How free care reduced hypertension in the health insurance experiment. JAMA 1985;254:1926-1931.
  11. ^ The Health Insurance Experiment: A Classic RAND Study Speaks to the Current Health Care Reform Debate, by Robert H. Brook, Emmett B. Keeler, Kathleen N. Lohr, et al.
  12. ^ Newhouse JP. Consumer-directed health plans and the RAND health insurance experiment. Health Affairs 2004 Nov/Dec;23(6):107-13.
  13. ^ Ginzberg E. Managed care hasn't lived up to its promises. New York Times 1992 Feb 20.
  14. ^ Nyman JA. American health policy: cracks in the foundation. J Health Polit Policy Law 2007;32:759-83.
  15. ^ Newhouse JP, Brook RH, Duan N, Keeler EB, Leibowitz A, Manning WG, et al. Attrition in the RAND Health Insurance Experiment: a response to Nyman. J Health Polit Policy Law 2008;33:295-308; discussion 309-17.
  16. ^ a b Levy H, Meltzer D. The impact of health insurance on health. Annu Rev Public Health 2008;29:399-409.
  17. ^ a b c Goldman DP, Joyce GF, Zheng Y. Prescription drug cost sharing: associations with medication and medical utilization and spending and health. JAMA 2007;298:61-69.
  18. ^ Cogan JR, Hubbard RG. Bringing the market to health care. Archived 2008-07-06 at the Wayback Machine Wall Street Journal 2007 Sep 15.
  19. ^ Editorial. The high cost of health care. New York Times 2007 Nov 25.
  20. ^ Sanghavi D. The high price of a medical miracle. If health-care costs are trimmed, who will be deprived of treatment? Washington Post 2008 May 27.
  21. ^ Oregon Health Study Archived 2012-06-26 at the Wayback Machine Home page
  22. ^ In Oregon, Test Case for Health Overhaul, Better Care at a Cost, By ANNIE LOWREY, New York Times, June 22, 2012
  23. ^ The follow-up study on Medicaid coverage in Oregon, Last Modified 2013 May 1. Retrieved 2015 Aug 5 2012
  24. ^ Medicaid Access Increases Use of Care, Study Finds By ANNIE LOWREY MAY 1, 2013 https://www.nytimes.com/2013/05/02/business/study-finds-health-care-use-rises-with-expanded-medicaid.html

Further readingEdit

  • 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 linksEdit