Constructing “Behavioral” Comparison Groups

Abstract

It is well known that the differences-in-differences (DD) estimator is based on the assumption that in the absence of treatment, the average outcomes for the treated group and the control group will follow a common trend over time. That can be problematic, especially when the selection for the treatment is influenced by the individual’s unobserved behavior correlating with the medical utilization. The aim of this study was to develop an index for controlling a patient’s unobserved heterogeneous response to reform, in order to improve the comparability of treatment assignment. This study showed that a DD estimator of the reform effects can be decomposed into effects induced by moral hazard and by changes in health risk within the same treated/untreated group. This article also presented evidence that the constructed index of the price elasticity of the adjusted clinical group has good statistical properties for identifying the impact of reform.