| According to the U.S. Census Bureau, about 43.6 million Americans, representing 15.2% of the total population, were without health insurance coverage in 2002. The high cost of health care is generally considered one of the major reasons for the size of the uninsured population. Considerable research has focused on the interrelationship between health care cost and health insurance demand. However, these studies typically do not model the effect of improving health care quality, which is one of the driving forces behind increases in health care cost, on health insurance demand.;Building on Phelps (1973), who showed that health care quantity and health insurance demand are determined simultaneously, this study develops a model that studies the relationship among three demand variables: health care quantity, health care quality and health insurance demand. A system of structural equations models their interdependence. Dynamic programming is then used to derive the comparative statics of the model.;The hedonic pricing method developed by Goldman and Grossman (1978) is employed to develop measures of health care quality and quality-adjusted health care price.;Empirical analyses of data from the 1996--1997 Community Tracking Study Household Survey indicate that there is trade-off between health care quality and health care quantity.;Health care quality has a statistically significant and positive effect on health insurance demand if we treat it as exogenous variable. However, the significance of the quality effect disappears when we treat the quality variable as endogenous. The reason is that there are offsetting effects at play. On the one hand, higher health care quality may lead people to desire more health insurance. On the other hand, the trade-off between health care quantity and health care quality will lead people to consume less health care quantity, which in turn may lower the demand for health insurance. The net effect is ambiguous. |
