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Patient cost-sharing for primary care and prescription drugs is designed to reduce the prevalence of moral hazard in medical utilization. Yet the success of this strategy depends on two factors: the elasticity of demand for those medical goods, and the risk of downstream hospitalizations by reducing access to beneficial health care. Surprisingly, the authors know little about either of these factors for the elderly, the most intensive consumers of health care in the country. They remedy both of these deficiencies by studying a policy change that raised patient cost-sharing for retired public employees in California. They find that physician office visits and prescription drug utilization are price sensitive, with implied arc-elasticity's that are similar to those of the famous RAND Health Insurance Experiment (HIE).
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