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

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  • Liran Einav
  • Amy Finkelstein
  • Maria Polyakova

Abstract

Standard theory suggests that optimal consumer cost-sharing in health insurance increases with the price elasticity of demand, yet publicly-provided drug coverage typically involves uniform cost-sharing across drugs. We investigate how private drug plans set cost-sharing in the context of Medicare Part D. We document substantial heterogeneity in the price elasticities of demand across more than 150 drugs and across more than 100 therapeutic classes, as well as substantial heterogeneity in the cost-sharing for different drugs within privately-provided plans. We find that private plans set higher consumer cost-sharing for drugs or classes with more elastic demand. Our findings suggest that benefit design may be more efficient in privately rather than publicly provided insurance.

Suggested Citation

  • Liran Einav & Amy Finkelstein & Maria Polyakova, 2016. "Private Provision of Social Insurance: Drug-specific Price Elasticities and Cost Sharing in Medicare Part D," NBER Working Papers 22277, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:22277
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    References listed on IDEAS

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    Cited by:

    1. Sharat Ganapati & Rebecca McKibbin, 2019. "Non-Tariff Barriers and Bargaining in Generic Pharmaceuticals," Working Papers gueconwpa~18-18-23, Georgetown University, Department of Economics.
    2. Clemens, Jeffrey & Gottlieb, Joshua D. & Molnár, Tímea Laura, 2017. "Do health insurers innovate? Evidence from the anatomy of physician payments," Journal of Health Economics, Elsevier, vol. 55(C), pages 153-167.
    3. David Dranove & Christopher Ody & Amanda Starc, 2021. "A Dose of Managed Care: Controlling Drug Spending in Medicaid," American Economic Journal: Applied Economics, American Economic Association, vol. 13(1), pages 170-197, January.
    4. Jonathan Gruber & Thomas P. Hoe & George Stoye, 2018. "Saving Lives by Tying Hands: The Unexpected Effects of Constraining Health Care Providers," NBER Working Papers 24445, National Bureau of Economic Research, Inc.
    5. Michael Geruso & Timothy Layton & Daniel Prinz, 2019. "Screening in Contract Design: Evidence from the ACA Health Insurance Exchanges," American Economic Journal: Economic Policy, American Economic Association, vol. 11(2), pages 64-107, May.
    6. Lavetti, Kurt & DeLeire, Thomas & Ziebarth, Nicolas R., 2019. "How Do Low-Income Enrollees in the Affordable Care Act Marketplaces Respond to Cost-Sharing?," IZA Discussion Papers 12731, Institute of Labor Economics (IZA).
    7. Kurt Lavetti & Kosali Simon, 2018. "Strategic Formulary Design in Medicare Part D Plans," American Economic Journal: Economic Policy, American Economic Association, vol. 10(3), pages 154-192, August.
    8. Jonathan Gruber, 2017. "Delivering Public Health Insurance through Private Plan Choice in the United States," Journal of Economic Perspectives, American Economic Association, vol. 31(4), pages 3-22, Fall.
    9. Sebastian Linde & Brandon Norton & Ralph Siebert, 2019. "The Effect of Bargaining Power Determinants on Pharmaceutical Prices," CESifo Working Paper Series 7988, CESifo.
    10. Westerhout, Ed & Folmer, Kees, 2018. "The Effects of Capping Co-Insurance Payments," Discussion Paper 2018-050, Tilburg University, Center for Economic Research.
    11. Ellis, Randall P. & Martins, Bruno & Zhu, Wenjia, 2017. "Health care demand elasticities by type of service," Journal of Health Economics, Elsevier, vol. 55(C), pages 232-243.
    12. Westerhout, Ed & Folmer, Kees, 2018. "The Effects of Capping Co-Insurance Payments," Other publications TiSEM 828746fb-4fb0-465b-bdff-3, Tilburg University, School of Economics and Management.

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    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • 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

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