Demand for prescription drugs under non-linear pricing in Medicare Part D.
We estimate the price elasticity of prescription drug use in Medicare Part D, which features a non-linear price schedule due to a coverage gap. We analyze patterns of drug utilization prior to the coverage gap, where the "effective price" is higher than the actual copayment for drugs because consumers anticipate that more spending will make them more likely to reach the gap. We find that enrollees' total pre-gap drug spending is sensitive to their effective prices: the estimated price elasticity of drug spending ranges between [Formula: see text]0.14 and [Formula: see text]0.36. This finding suggests that filling in the coverage gap, as mandated by the health care reform legislation passed in 2010, will influence drug utilization prior to the gap. A simulation analysis indicates that closing the gap could increase Part D spending by a larger amount than projected, with additional pre-gap costs among those who do not hit the gap.
Department of Health Policy and Administration, College of Health and Human Development, The Pennsylvania State University, 604 Ford Building, University Park, PA , 16802, USA, kuj11@psu.edu.
Kyoungrae
K
Jung
Roger
R
Feldman
A Marshall
AM
McBean
D016208:Databases, Factual; D004363:Drug Utilization / Q000191:economics; D005102:Health Expenditures / Q000639:trends; D006301:Health Services Needs and Demand / Q000639:trends*; D006801:Humans; D019458:Insurance Coverage / Q000191:economics / Q000331:legislation & jurisprudence; D054524:Medicare Part D / Q000191:economics*; D055553:Prescription Drugs / Q000191:economics*; D014481:United States
D055553:Prescription Drugs