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Moral Hazard in Drug Purchases

Author

Listed:
  • Jouko Verho

    (VATT Institute for Economic Research and Finnish Center of Excellence in Tax Systems Research (FIT))

  • Jarkko Harju

    (Tampere University, Finnish Centre of Excellence in Tax Systems Research (FIT) and VATT Institute for Economic Research)

Abstract

We study the moral hazard effects of the drug copayment threshold in Finland using detailed prescription drug purchase data. The analysis reveals that the average drug costs increase discontinuously by 17% at the threshold above which out-of-pocket drug costs decrease substantially. Our results suggest an average price elasticity of -0.17, which indicates evident moral hazard costs. Approximately 80% of the overall effect is due to individuals buying drugs in larger quantities rather than purchasing higher-priced drugs. The heterogeneity analysis suggests that the responses are largest for drug categories taken on an as-needed rather than a regular basis.

Suggested Citation

  • Jouko Verho & Jarkko Harju, 2023. "Moral Hazard in Drug Purchases," Working Papers 12, Finnish Centre of Excellence in Tax Systems Research.
    • Handle: RePEc:fit:wpaper:12
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    References listed on IDEAS

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    More about this item

    Keywords

    Prescription drugs; Moral hazard; Health insurance;
    All these keywords.

    JEL classification:

    • I10 - Health, Education, and Welfare - - Health - - - General
    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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