Abstract
Data drawn from the 1960 Survey of Consumer Expenditures are used to estimate price and income elasticities of the demand for hospitalization and physicians' services. The price elasticity ranges from -0.35 to -1.5 for prices ranging from 20 to 80 percent of the 1960 market price. The income elasticity ranges from 0.25 to 0.45 for incomes ranging from 4,000 to 10,000. The estimated demand function is used to calculate the cost of providing protection against the highly probable, small losses typically covered by health insurance policies. A family with an income of 7,000 paid 2.5 times the actuarial value of the loss to protect itself against a highly probable 110 loss.
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