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evidence points to a very high level of price sensitivity among Medicaid beneficiaries. It follows

that imposing or increasing premiums and cost sharing in Medicaid or SCHIP could jeopardize

beneficiaries’ ability to afford health services, compromise their health, and ultimately lead to

higher program costs due to greater use of emergency rooms and other types of care.

D. POLICY IMPLICATIONS RELATED TO HEALTH SERVICE USE

The literature includes fewer simulations that use elasticity estimates of demand for health

care services than those that use insurance elasticity estimates. Most of the policy implications

drawn from this literature relate to the implementation of multi-tier copayment structures for

prescription drugs.

Joyce et al. (2002) concluded that several different approaches to increase cost-sharing

among working-age enrollees with employer-provided drug coverage—adding an additional

level of copayment, increasing existing copayments, or requiring mandatory generic

substitution—would each reduce plan payments and overall drug spending by increasing

enrollees’

share

of

expenses.

However,

Harris

et

al.

(1990)

concluded

that

the

effect

of

copayments on reducing costs was relatively small, although the volume of prescriptions would

fall. In light of the relatively high price elasticity of demand for medications, Goldman et al.

(2004) raised concerns about adverse health consequences that might result from significant

increase in copayments, particularly for patients with chronic illness (in this case, diabetes).

58

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