Private insurance for prescription drugs is characterized by two regimes: flat copayments and variable co-insurance. We develop a simple model to show that patient compliance is lower under coinsurance due to uncertainty in cost-sharing. Empirically, we derive comparable models for compliance behavior in the two regimes. Using claims data from nine large firms, we focus our analysis on diabetes, a common chronic condition that leads to severe complications when inappropriately treated. In the coinsurance model, an increase in the coinsurance rate from 20% to 75% resulted in the share of persons who never comply to increase by 9.9%, and reduced the share of fully compliant persons by 24.6%. In the copayment model, an increase in the copayment from $6 to $10 resulted in a 6.2% increase in the share of never-compliers, and a concomitant 9% reduction in the share of full compliers. Similar results hold when the level of cost-sharing is held constant across regimes. While non-compliance reduces expenditures on prescription drugs it may also lead to increases in indirect medical costs due to avertable complications. Using available aggregate estimates of the cost of diabetic complications, we calculate that the $6-$10 increase in copayment would have the direct effect of reducing national drug spending for diabetes by $125 million. However, the increase in non-compliance rates is expected to increase the rate of diabetic complications resulting in an additional $360 million in treatment costs. The results suggest that both private payers and public payers may be able to reduce overall medical costs by switching from coinsurance to copayments in prescription drug plans.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
file. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Publisher Info
Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
10738.
Length: Date of creation: Sep 2004 Date of revision: Handle: RePEc:nbr:nberwo:10738
Note: HE PR Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A. Phone: 617-868-3900 Email: Web page: http://www.nber.org More information through EDIRC
For technical questions regarding this item, or to correct its listing, contact: ().
Related research
Keywords:
Other versions of this item:
Find related papers by JEL classification: I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
This paper has been announced in the following NEP Reports:
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)