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Examining use of mental health services in the 1980s, some observational studies estimated

the price elasticity for mental health services at about –1.0, much higher than that for acute care

in general (McGuire 1981; Taube et al. 1986). In contrast to the elasticity of demand for other

services, at least one study found that the intensity of mental health use (number of visits per

user) declined more in response to an increase in price than did the probability any service use

(Horgan 1986). However, each of these studies may have overstated the price elasticity by

ignoring the potential for adverse selection.

With 1991 data from an HMO, Simon et al. (1996) observed a natural experiment to

estimate the price elasticity of demand for mental health services, finding that the probability of

using any mental health care declined just 0.17 to 0.28 percent in response to a 1-percent

increase in copayment for these services. Unlike the HIE, Simon and colleagues found very little

effect on intensity (number of visits per user) associated with the introduction of the $20

copayment.

Finally, men and women may respond differently to changes in the price of mental health

services. Wallen et al. (1986) estimated a price elasticity of –0.50 for men compared with –0.31

for women.

4.

Dental Services

Most of what is known about the price elasticity of demand for dental services is based on

studies prior to 1990s. Analysis of HIE data found 34 percent more visits and 46 percent higher

expenses among people with no coinsurance than among those in the plan with 95 percent

coinsurance (Newhouse et al. 1993). The largest difference was observed between those with

free care and those with a 25 percent coinsurance rate—suggesting that having dental insurance

coverage at all plays a much bigger role in the demand for care than a change in the price of care

once insured.

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