When people pay a reduced price for health care, either because they have health insurance coverage or because the government subsidizes their care, they consume more health care services. Past research has confirmed this even for prescription drugs.

• A study found that a modest 50-cent drug copayment in South Carolina's Medicaid program in 1977 caused significant decline in drug use.

• When a three-per-month prescription limit and a $1 copayment were introduced in New Hampshire's Medicaid program, the number of prescriptions filled was significantly reduced.

A more recent study has found similar effects in Pennsylvania. The state's Pharmaceutical Assistance Contract for the Elderly (PACE) began paying for all outpatient prescriptions for low-income elderly, less a $4 copayment per 30 days dosage.

• The average subsidy is $18.48, or 82.2 percent of the full price.

• Based on a 1990 survey, PACE beneficiaries responded to the expanded drug benefit with a 27.6 percent increase in the number of prescriptions purchased.

In general, a 10 percent decrease in price caused a 3.4 percent increase in the number of prescriptions filled. - David R. Henderson.