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How Does Cost‐Sharing Affect Drug Purchases? Insurance Regimes in the Private Market for Prescription Drugs

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  • Avi Dor
  • William Encinosa

Abstract

Insurance for prescription drugs is characterized by two types of cost‐sharing: flat copayments and variable coinsurance. We develop a theoretical model to show that refill purchases of drugs are lower under coinsurance due to the consumer’s exposure to variation in drug prices. We test this empirically using claims data from eight large firms. Propensity score methods are used to create matched samples for the two insurance regimes. We find that when coinsurance and copayments have the same expected out‐of‐pocket of $9, at least 34% of patients under copayments would fully refill their medication over 90 days, compared to only 24% under coinsurance.

Suggested Citation

  • Avi Dor & William Encinosa, 2010. "How Does Cost‐Sharing Affect Drug Purchases? Insurance Regimes in the Private Market for Prescription Drugs," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 19(3), pages 545-574, September.
    • Handle: RePEc:bla:jemstr:v:19:y:2010:i:3:p:545-574
    DOI: 10.1111/j.1530-9134.2010.00261.x
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    References listed on IDEAS

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    Cited by:

    1. William Encinosa & Didem Bernard & Avi Dor, 2010. "Does Prescription Drug Adherence Reduce Hospitalizations and Costs?," NBER Working Papers 15691, National Bureau of Economic Research, Inc.
    2. David B. Ridley, 2015. "Payments, Promotion, And The Purple Pill," Health Economics, John Wiley & Sons, Ltd., vol. 24(1), pages 86-103, January.

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