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Private Provision of Social Insurance: Drug-Specific Price Elasticities and Cost Sharing in Medicare Part D

Author

Listed:
  • Liran Einav
  • Amy Finkelstein
  • Maria Polyakova

Abstract

We explore how private drug plans set cost sharing in the context of Medicare Part D. While publicly provided drug coverage typically involves uniform cost sharing across drugs, we document substantial heterogeneity in the cost sharing for different drugs within privately provided plans. We also document that private plans systematically set higher consumer cost sharing for drugs or classes associated with more elastic demand; to do so, we estimate price elasticities of demand across more than 150 drugs and across more than 100 therapeutic classes. We conclude by discussing the various channels that likely affect private plans' cost-sharing decisions.

Suggested Citation

  • Liran Einav & Amy Finkelstein & Maria Polyakova, 2018. "Private Provision of Social Insurance: Drug-Specific Price Elasticities and Cost Sharing in Medicare Part D," American Economic Journal: Economic Policy, American Economic Association, vol. 10(3), pages 122-153, August.
    • Handle: RePEc:aea:aejpol:v:10:y:2018:i:3:p:122-53
    Note: DOI: 10.1257/pol.20160355
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    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics

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