Table 5.

Relationship between elasticity of common drug and its tier-positioning

Sample	Dependent Variable: Estimated demand elasticity
	All drugs & plans (1)	All drugs & plans (2)	4-tier plans (3)	High frequency drugs (4)	All drugs & plans (5)	“Lower subst.” drugs (6)
High co-insurance (Tier 3)	−0.108 (0.006)	−0.105 (0.005)	−0.115 (0.007)	−0.055 (0.004)	−0.179 (0.006)	−0.111 (0.013)
Formulary Fixed Effects	No	Yes	Yes	Yes	Yes	Yes
Drug price included	No	No	No	No	Yes	No
R-squared	0.012	0.020	0.020	0.011	0.057	0.025
No. of Obs.	49,392	49,392	29,538	34,371	49,392	10,058
Mean of Dep. Var.	−0.209	−0.209	−0.211	−0.203	−0.209	−0.250
Std. Dev. Of Dep. Var.	0.391	0.391	0.396	0.258	0.391	0.406

Table shows the relationship between the estimated demand elasticity of each drug and its tier placement, as in equation (3). We report the coefficient on being in Tier 3, relative to tiers 1 or 2; indicator variables for higher tiers are included in the regression (but not reported). The unit of observation is a drug-by-formulary-by-tier. Standard errors in parentheses are clustered at the formulary-tier level. Column (4) restricts the analysis to the 96 of our 160 “common drugs” that have at least 300,000 claims over our sample period. Column (5) adds a control for the total cost of the drug by year. Column (6) restricts the analysis to the 29 drugs for which substitution to other drugs is less likely.