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IV. PRICE ELASTICITY OF DEMAND FOR HEALTH CARE SERVICES

Most studies that address the price elasticity of demand for health care services consider

only

the

insured

population.12

For

this

population,

the

design

of

insurance

coverage—with

deductibles, coinsurance, and copayments, as well as limits on the scope of covered services—

determines the effective price that they pay for care. Because the effective price of care may

differ for specific services and over time (as consumers exhaust their deductibles and limits on

coverage), determining the price elasticity of demand for services is particularly complex.

In the following sections, we review estimates of the price elasticity of demand for health

care in general and then discuss estimates for specific types of services such as prescription

drugs, acute care, nursing home services, and other services. Each section is organized in the

same way as in the previous chapter: first we discuss the range of estimates and estimates for

different subpopulations and then turn to methodological issues and concerns. Special issues

related to the demand for specific types of service also are discussed. Because the demand for

one type of service may be related to another, cross-price elasticity estimates are presented as

they relate to each type of service. The final section offers a summary of the chapter.

Despite the fact that the HIE was conducted almost 30 years ago and its design inevitably

raises issues of external validity,13 it remains the benchmark against which subsequent studies

estimating price sensitivity of demand for health services are compared. This stature is a

reflection of the methodological rigor of the project design (e.g., minimizing selection bias via a

12 Studies that have addressed the demand for health services among the uninsured population date to the 1970s and suggest that uninsured consumers are more sensitive to price than insured consumers. For example, Holtman and Olsen (1978) found that price elasticity of demand for physician care was –0.164 without effective insurance coverage and –0.097 with effective insurance coverage.

13 For example, the HIE is geographically limited, as it was implemented in only six sites, though the sites were chosen to include places that differed in important ways.

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