How Sensitive are Seniors to the Price of Prescription Drugs?

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