Demand for prescription drugs under non-linear pricing in Medicare Part D

Kyoungrae Jung, Roger Feldman, A. Marshall McBean

Research output: Contribution to journalArticlepeer-review

3 Scopus citations

Abstract

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 -0.14 and -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.

Original languageEnglish (US)
Pages (from-to)19-40
Number of pages22
JournalInternational journal of health care finance and economics
Volume14
Issue number1
DOIs
StatePublished - Mar 2014

Keywords

  • Medicare Part D
  • Non-linear pricing
  • Prescription drug spending
  • Price elasticity

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