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Incentives and Selection Effects of Drug Coverage on Total Drug Expenditure: a Finite Mixture Approach

Abstract

This paper takes a nte mixture approach to model heterogeneity in incentives and selection effects of drug coverage on the total drug expenditure among the Medicare elderly US population. Evidence is found that the positive drug expenditures of the entire elderly popultion can be decomposed into two groups of relatively healthy with lower average expenditures and relatively unhealthy with higher average expenditures, accounting for approaximately 25% and 75% of the population, respectively. The incentive effects of drug insurance, i.e. ex post moral hazard, are much stronger in magnitude for the unhealthy group. There is also evidence of adverse selection into drug insurance, and this appears to be greater for the higher-expenditure component.

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Paper provided by HEDG, c/o Department of Economics, University of York in its series Health, Econometrics and Data Group (HEDG) Working Papers with number 09/22.

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Date of creation: Jul 2009
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Handle: RePEc:yor:hectdg:09/22
Contact details of provider: Postal: HEDG/HERC, Department of Economics and Related Studies, University of York, York, YO10 5DD, United Kingdom
Phone: (0)1904 323776
Fax: (0)1904 323759
Web page: http://www.york.ac.uk/economics/postgrad/herc/hedg/Email:


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Cited by:

  1. Michael P. Keane & Olean Stavrunova, 2014. "Adverse Selection, Moral Hazard and the Demand for Medigap Insurance," Economics Papers 2014-W02, Economics Group, Nuffield College, University of Oxford.

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