Is Drug Coverage a Free Lunch? Cross-Price Elasticities and the Design of Prescription Drug Benefits
AbstractRecently, many U.S. employers have adopted less generous prescription drug benefits. In addition, the U.S. began to offer prescription drug insurance to approximately 42 million Medicare beneficiaries in 2006. We use data on individual health insurance claims and benefit data from 1997-2003 to study the effects of changing consumers' co-payments for prescription drugs on the quantity demanded and expenditure on prescription drugs, inpatient care and outpatient care. We allow for effects both in the year of the co-payment change and in the year following the change. Our results show that increases in prescription drug prices reduce both the use of and spending on prescription drugs. However, consumers substitute the use of outpatient care and inpatient care for prescription drug use, and about 35% of the expenditure reductions on prescription drugs are offset by the increases in other spending.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12758.
Date of creation: Dec 2006
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- Martin Gaynor & Jian Li & William B. Vogt, 2006. "Is Drug Coverage a Free Lunch? Cross-Price Elasticities and the Design of Prescription Drug Benefits," The Centre for Market and Public Organisation 07/166, Department of Economics, University of Bristol, UK.
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
- I10 - Health, Education, and Welfare - - Health - - - General
- M50 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-12-22 (All new papers)
- NEP-HEA-2006-12-22 (Health Economics)
- NEP-IAS-2006-12-22 (Insurance Economics)
- NEP-REG-2006-12-22 (Regulation)
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