Waiting or Paying for Healthcare: Evidence from the Veterans Health Administration

Healthcare is often allocated without prices, sacrificing efficiency in the interest of equity. Wait times then typically serve as a substitute rationing mechanism, creating their own distinct efficiency and distributional consequences. I study these issues in the context of the Veterans Health Administration (VA), which provides healthcare that is largely free but congested, and the Choice Act, a large-scale policy intervention that subsidized access to non-VA providers to reduce this congestion. Using variation in Choice Act eligibility in both patient-level and clinic-level difference-in-differences designs, I find that the price reduction for eligible veterans led to substitution away from the VA, an increase in overall healthcare utilization and spending, and reduced wait times at VA clinics in equilibrium. I then use the policy-induced price and wait time variation to estimate the joint distribution of patients’ willingness-to-pay and willingness-to-wait. I find that rationing via wait times redistributes access to healthcare to lower socioeco- nomic status veterans, but at a large efficiency cost (-23%). By contrast, I find that a coarsely targeted, modest increase in copayments increases consumer surplus by more than the Choice Act, at lower cost to the VA, while disproportionately benefitting low-income veterans.