The RAND Health Insurance Experiment remains one of the most rigorous and comprehensive studies of health care cost, utilitzation and outcome. It provides the most persuasive evidence to date on the relative effects of health maintenance organizations and fee-for-service care on demand for health care and health care outcomes.
In 1971, RAND established an insurance company using funding from the then-U.S. Department of Health, Education and Welfare. The company insured 5809 people, randomly assigned to insurance plans that either had no cost sharing, 25, 50 or 95% copayment rates with a maximum annual payment of $1000.
The study found higher copayment rates reduced spending because people did not seek care as frequently. It also found little deterioration of health, implying that people seek unnecessary care when the charge per visit is free or low. This remains a controversial point in health and health economics literature.
Overconsumption of health services is one of the main causes of the steadily increasing cost of health care in most countries. The study has influenced insurance companies and government health plans to shift costs from the premium to the point of care; according to the experiment, this should reduce excess demand.