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are much larger than typically estimated elasticities of market-wide demand and may reflect

alternative long-term care options that are unique to the observed time and sites of the study.

E. SUMMARY

Compared to the literature estimating the elasticity of demand for health insurance,

relatively few recent studies have estimated the price elasticity of demand for insured health

care

services.

In

general,

more

recent

studies

have

produced

estimates

that

are

broadly

consistent with findings from the HIE: the demand for insured health services is price-inelastic,

with most estimates centered at about –0.2 (Table IV.A). Price sensitivity varies for different

types of services, but with a few exceptions, the differences are not large. In summary:

  • Overall health spending may fall 2 percent in response to a 10 percent increase in the price of health care. The price-induced changes in demand are attributable more to changes in the probability of using any care than to changes in the amount of care used, once care has been accessed.

  • Low-income consumers are more sensitive to price changes and, therefore, may be more likely to have adverse consequences from increased cost sharing.

  • Recent studies on the demand for prescription drugs suggest that multi-tier formularies reduce drug expenditures, and that the demand for some drugs (e.g., those treating symptomatic conditions) may be more price-elastic than the demand for other drugs. Direct-to-consumer advertising may significantly reduce the price elasticity of demand for at least some prescription drugs.

  • The demand for inpatient services may be less price-sensitive than the demand for outpatient services. Available evidence suggests that inpatient and outpatient care are complementary, not substitutes.

  • The demand for mental health care, dental services, and long-term care services may be more price-elastic than the demand for other types of care. Because insurance coverage for these services is less than for other services, a significant increase in coverage is likely to have a greater effect on use than suggested by price elasticities that are estimated based on a change only in cost sharing for covered services.

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