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than one might expect. For example, the demand for inpatient care is relatively unresponsive to

price changes, whereas price responsiveness of demand for mental health services is higher.18

Consistent with their demand for health care in general, lower-income people are more sensitive

to changes in price for any type of service than are higher-income people.


Inpatient and Outpatient Services

The most comprehensive analyses of the effect of price on the demand for inpatient and

outpatient services still are based on data from the HIE. Using HIE data, Newhouse et al. (1993)

estimated a price elasticity of demand of –0.17 for both inpatient and outpatient services when

coinsurance rates were less than 25 percent. With higher coinsurance rates (25 to 95 percent) the

demand for inpatient services was slightly less price-elastic (–0.14) and the demand for

outpatient services was more price-elastic (–0.31). The HIE found no evidence that inpatient

services substituted for outpatient services. To the contrary, Manning et al. (1987) concluded

that inpatient and outpatient services might be complementary.

More recent studies have produced estimates of price response with respect to the use of

either inpatient or outpatient services that are difficult to compare with the elasticity estimates

from the HIE. Cherkin et al. (1989) examined the effects of a $5 copayment introduced in 1985

on the use of physician office visits for employees in Washington and found that the total visits

declined by 8.3 percent. Primary care visits were reduced most, and specialty visits were

reduced the least.

Using a natural experiment offered by a transition to managed care in the military system,

Goldman (1995) compared military beneficiaries’ use of inpatient and outpatient care between

18 Fewer studies have estimated price elasticity of preventive care demand, but limited evidence suggests that it may be higher than that for acute care. Analysis of HIE data showed that at higher coinsurance rates (25-95 percent), the price elasticity of demand for preventive care was –0.43 and for acute care it was –0.32. At lower coinsurance rates (0-25 percent), the price elasticities were similar.


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