Working Paper: NBER ID: w22277
Authors: Liran Einav; Amy Finkelstein; Maria Polyakova
Abstract: Standard theory suggests that optimal consumer cost-sharing in health insurance increases with the price elasticity of demand, yet publicly-provided drug coverage typically involves uniform cost-sharing across drugs. We investigate how private drug plans set cost-sharing in the context of Medicare Part D. We document substantial heterogeneity in the price elasticities of demand across more than 150 drugs and across more than 100 therapeutic classes, as well as substantial heterogeneity in the cost-sharing for different drugs within privately-provided plans. We find that private plans set higher consumer cost-sharing for drugs or classes with more elastic demand. Our findings suggest that benefit design may be more efficient in privately rather than publicly provided insurance.
Keywords: Medicare; Cost Sharing; Social Insurance; Elasticity of Demand
JEL Codes: D12; G22; H51; I13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| higher consumer cost-sharing (D16) | drugs with more elastic demand (D12) |
| cost-sharing (D16) | drug utilization (H51) |
| cost-sharing (D16) | demand elasticity (D12) |
| private plans respond to moral hazard (G52) | optimal cost-sharing (C71) |
| private plans are more efficient in managing moral hazard (D61) | overall welfare of consumers (D18) |