Working Paper: NBER ID: w27977
Authors: Tal Gross; Timothy Layton; Daniel Prinz
Abstract: Some consumers lack the cash needed to pay for medical care. As a result, they either delay care until they can pay for it or they forgo the care altogether. To test for such a possibility, we study the distribution of monthly Social Security checks among Medicare Part D enrollees. When Social Security checks are distributed, prescription fills increase by 6-12 percent. In that sense, drug consumption of low-income Medicare recipients is "liquidity sensitive." We then study recipients who transition onto a program that eliminates copayments. When those recipients do not face copayments, their drug consumption becomes less liquidity sensitive. That finding implies that, beyond risk protection, generous insurance also provides recipients with the ability to consume healthcare when they need it rather than when they have cash. Further, we find that recipients whose drug consumption is most liquidity sensitive exhibit price elasticities of demand that are twice the size of the average elasticity, suggesting that more-generous insurance causes recipients both to re-time prescription filling and also to start filling prescriptions that they otherwise would not fill. We present a stylized model that uses this finding to call into question the conventional interpretation of demand-response to price as solely inefficient moral hazard.
Keywords: healthcare consumption; social security payments; liquidity sensitivity; Medicare
JEL Codes: G51; H01; I13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| timing of social security checks (H55) | healthcare consumption (I11) |
| social security checks (H55) | prescription fills (I11) |
| program eliminating copayments (I13) | drug consumption liquidity sensitivity (E41) |
| generous insurance (G52) | retimed prescription filling (C41) |
| generous insurance (G52) | increased overall consumption of prescriptions (H51) |
| liquidity sensitivity (E41) | healthcare utilization (I11) |
| liquidity sensitivity (E41) | price elasticities of demand (D12) |