Results from the HIE indicated the average expenditure for prescription drugs in a plan
without cost sharing ($82) was nearly twice as high as in the plan with a 95 percent coinsurance
rate ($46) (Newhouse et al. 1993). In large part, this difference was driven by the number of
researchers concluded that the elasticity of demand for prescription drugs was –0.17, similar to
the elasticity of demand for health care in general.
More recently, Smith (1993) used cross-sectional claims data to study the effect of an
increase in copayments on the number of prescriptions purchased. He estimated a price elasticity
of –0.10 with respect to the number of prescriptions filled, but found no effect on total
expenditures for prescription drugs.
Motheral and Fairman (2001) examined the effects on prescription drug use among
employees enrolled in a PPO plan, moving from a two-tier cost sharing plan for prescription
drugs to a three-tier plan. Using a difference-in-difference research design, they estimated a
copayment elasticity of –0.21 with respect to use and –0.24 with respect to expenditures. Also
using a difference-in-difference approach, Gibson et al. (2005) compared employees facing an
increase in the copayment for prescription drugs with employees for whom copayments had not
changed, and estimated a much lower price elasticity (–0.04) with respect to use. They estimated
a –0.03 cross-price elasticity between generic and brand drugs, confirming that generic drugs
were substituted for brand-name drugs—a finding consistent with other studies as well (Goldman
et al. 2004). Finally, they found that the copayment effect on prescription drugs utilization
diminished after the initial reponse, suggesting that the long-run elasticity of demand is lower
than the short-run elasticity of demand.
16 In general, this result mirrors findings with respect to the impact of cost sharing on other service types—that is, cost sharing affects the probability of using any care, but not the cost of care once accessed (Ringel 2002).