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specific medications was 8 to 31 percent lower among participants with chronic conditions such

as diabetes compared to other participants. However, based on analysis of other multi-employer

data, Gibson et al. (2005) found no significant difference in the copayment elasticity among

participants with a chronic illness versus others, but did observe that participants with a newly

diagnosed chronic illness were less responsive to a increase in the copayment.

Low-Income Consumers. Among low-income populations, the price elasticity of demand

for prescription drugs may be particularly high. Tamblyn et al. (2001) studied the consequences

of a policy change in Quebec that imposed copayments for prescription drugs on low-income

adults receiving welfare. They found that fewer prescriptions for essential medications were

filled after copayments were in place—and that the occurrence of adverse events and emergency

room use increased sharply. A recent small survey in Minnesota produced similar findings:

more than half of hospital patients covered by Medicaid or medical assistance reported that they

had been unable to fill a prescription at least once in the last six months because of a $3

copayment for brand-name drugs copayments or a $1 copayment for generic drugs (Mendiola et

al. 2004).

The Elderly Population.

While the elderly population typically has greater need for

prescription drugs, the research evidence about their response to price changes is extremely

limited—in large part because Medicare has not covered drugs before the implementation of Part

D. Combining data from Medicare Current Beneficiary Survey with Medicare billing records,

Klick and Stratmann (forthcoming) examined the effect of different Medigap coinsurance rates

on beneficiaries’ demand for prescription drugs. They used an instrumental variables approach


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