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  • Depending on how many alternative insurance options presented to an employee, the price elasticity of demand among insured workers for any one option may be relatively large, but its absolute value is still less than one.

  • In the individual market, estimates of the price elasticity of demand are usually in the range of –0.2 to –0.6.

  • Evidence on the price elasticity of demand among Medicare beneficiaries for Medicare+Choice (now Medicare Advantage) plans is scarce, but suggests that elderly beneficiaries are less sensitive than nonelderly consumers to the price of insurance.

  • Limited evidence implies that lower-income consumers are more price sensitive than higher-income consumers, all else being equal.

  • There is no evidence suggesting that employers as a whole are less likely to offer coverage when a greater proportion of their employees or dependents are eligible for Medicaid—although small low-wage employers may be less likely to do so.

The few observational studies that can be used to estimate the income elasticity of demand consistently indicate that the demand for health insurance is inelastic with respect to differences in consumer income. These studies typically peg the income elasticity of demand for health insurance at less than 0.1.

ELASTICITY OF DEMAND FOR HEALTH CARE SERVICES

Consistent with the HIE, more recent research has estimated the demand for insured health services to be inelastic with respect to price. Most estimates of the price elasticity of demand for health care services in general (or total spending) are about –0.2. Estimated price elasticities differ by type of service, but the differences are not generally large. Specifically:

  • Insured consumers may cut back on their overall health spending by 2 percent in response to a 10 percent increase in the price of health care (net of insurance coverage). Price-induced changes in demand have been attributed more to changes in the probability of using any care than to changes in the amount of care used once it is accessed.

  • Low-income consumers are more sensitive to changes in the price of care. Consequently, they may be more likely to experience adverse consequences from higher cost-sharing.

With respect to different types of health care services, both the HIE and more recent studies have found that there are service-specific differences in the price elasticity of demand. For example:

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