Estimation of offset and income effects on the demand for mental health treatment

An offset (substitution) effect occurs when the use of one treatment reduces levels or costs of alternative treatments. This model considers offsets through the demand for health services and the technology for providing them. Mental health offsets in the provision of ambulatory physician care are analyzed by estimating permanent income, health expenditures, and budget shares, in a three stage process, for the categories Mental Health, Chronic, Mixed, Acute, and Other, using the NMCES database. Tobit estimators are used since many observations have zero expenditures. Ambulatory physician care expenditures are relatively elastic with respect to price and to coinsurance, but less elastic with respect to income. Mental health care is a substitute for Chronic and Other, but not for Mixed and Acute.