How Sensitive are Seniors to the Price of Prescription Drugs?

23 Pages Posted: 23 Jul 2005

See all articles by Jonathan Klick

Jonathan Klick

University of Pennsylvania Law School; Erasmus School of Law; PERC - Property and Environment Research Center

Thomas Stratmann

George Mason University - Buchanan Center Political Economy; George Mason University - Mercatus Center; CESifo (Center for Economic Studies and Ifo Institute)

Abstract

This study estimates the demand curve for prescription drugs among elderly Medicare beneficiaries. In contrast to previous work, the current analysis uses a measure of price rather than insurance status as the key explanatory variable to test for seniors' sensitivity to prescription drug price changes. The estimates show that a one percentage point increase in the coinsurance rate implies a 1.01 percent decrease in the number of prescriptions filled and a 0.69 percent decrease in total drug expenditures. This finding indicates that seniors are far more responsive to prescription drug price changes than suggested by studies that examine younger individuals or those that do not control for self-selection into supplemental insurance plans.

Keywords: Insurance, Moral Hazard, Medicare, Price Elasticity

JEL Classification: D8, H5, I1, I3, J1, K3

Suggested Citation

Klick, Jonathan and Stratmann, Thomas, How Sensitive are Seniors to the Price of Prescription Drugs?. FSU College of Law, Law and Economics Paper No. 05-17, FSU College of Law, Public Law Research Paper No. 161, Available at SSRN: https://ssrn.com/abstract=766844 or http://dx.doi.org/10.2139/ssrn.766844

Jonathan Klick (Contact Author)

University of Pennsylvania Law School ( email )

3501 Sansom Street
Philadelphia, PA 19104
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2157463455 (Phone)

Erasmus School of Law ( email )

3000 DR Rotterdam
Netherlands

PERC - Property and Environment Research Center

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United States

Thomas Stratmann

George Mason University - Buchanan Center Political Economy ( email )

4400 University Drive
Fairfax, VA 22030
United States
703-993-2330 (Phone)

George Mason University - Mercatus Center ( email )

3434 Washington Blvd., 4th Floor
Arlington, VA 22201
United States

HOME PAGE: http://www.mercatus.org/scholars/thomas-stratmann

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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