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

Liran Einav, Amy Finkelstein and Maria Polyakova

No 22277, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: D12 G22 H51 I13 (search for similar items in EconPapers)
Date: 2016-05
New Economics Papers: this item is included in nep-ias and nep-pub
Note: AG EH IO PE
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Published as Liran Einav & Amy Finkelstein & Maria Polyakova, 2018. "Private Provision of Social Insurance: Drug-Specific Price Elasticities and Cost Sharing in Medicare Part D," American Economic Journal: Economic Policy, vol 10(3), pages 122-153.

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Journal Article: Private Provision of Social Insurance: Drug-Specific Price Elasticities and Cost Sharing in Medicare Part D (2018)
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