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Joyce et al. (2002) examined how a series of changes in cost sharing for prescription drugs

affects total expenditures for pharmaceuticals—specifically, moving from a one- to a two- or a

two- to a three-tier plan, doubling copayments in each tier, or requiring generic substitution.

This study estimated copayment elasticities that ranged from –0.22 (from doubling copayments

in a single-tier plan) to –0.40 (from doubling copayments in a three-tier plan). Adding a second

copayment tier ($20 in addition to $10) reduced average spending by 19 percent, and adding a

third level ($30) reduced average spending by an additional 4 percent.

Requiring generic

substitution in a two-tier plan reduced drug spending by 8 percent.

A few studies have estimated the elasticity of demand for drugs in specific therapeutic

classes. Using claims data from 30 employers with 52 health plans between 1997 and 2000,

Goldman et al. (2004) examined the effect of doubling the copayment for eight classes of

therapeutic drugs. They found reduced utilization in all eight classes, ranging from 45 percent

(for nonsteroidal anti-inflammatory drugs) to 25 percent (for anti-diabetic drugs). Lansman et al.

(2005) studied the effect of introducing three-tier copayments and reached similar conclusions.

They estimated a generally low copayment elasticity (-0.16 to –0.10) for drugs to treat on-going

asymptomatic conditions, and a moderate copayment elasticity (-0.60 to –0.24) for drugs to treat

symptomatic conditions.

2.

Subpopulation Differences

Certain subpopulations (such as people with chronic illness, the low-income, and the

elderly) are likely to have different price elasticity of demand for prescription drugs. This

section summarizes the limited evidence for these subpopulations.

Persons with Chronic Illness. In general, people with chronic illness are expected to be

less

responsive

to

changes

in

copayments.

Studying

use

of

care

by

participants

in

plans

sponsored (respectively) by 30 employers, Goldman et al. (2004) found that the use of disease-

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