A Copayment Increase for Prescription Drugs: The Long-Term and Short-Term Effects on Use and Expenditures

Abstract

This study estimates the effects of an increase in an outpatient prescription drug copayment using a natural experiment based upon a large firm that implemented such an increase. The findings suggest that the primary effect of a copayment increase is attenuation of the trend in prescription drug utilization. We also find an initial reduction in expenditures, with the effects on spending diminishing. Employees with an existing chronic illness and those without a chronic illness show a similar, inelastic response to a copayment increase; employees with a newly diagnosed chronic illness have a more inelastic response.