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.