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

45 Pages Posted: 24 May 2016

See all articles by Liran Einav

Liran Einav

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Amy Finkelstein

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

Maria Polyakova

Stanford University - Department of Health Research and Policy; National Bureau of Economic Research (NBER)

Date Written: May 2016

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

Einav, Liran and Finkelstein, Amy and Polyakova, Maria, Private Provision of Social Insurance: Drug-Specific Price Elasticities and Cost Sharing in Medicare Part D (May 2016). NBER Working Paper No. w22277. Available at SSRN: https://ssrn.com/abstract=2783191

Liran Einav (Contact Author)

Stanford University - Department of Economics ( email )

Landau Economics Building
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Stanford, CA 94305-6072
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650-723-3704 (Phone)
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National Bureau of Economic Research (NBER)

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Amy Finkelstein

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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Cambridge, MA 02142
United States
617-588-0361 (Phone)
617-868-7242 (Fax)

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
United States

Maria Polyakova

Stanford University - Department of Health Research and Policy ( email )

Redwood Building, T111
150 Governor's Lane
Stanford, CA 94305
United States

HOME PAGE: http://web.stanford.edu/~mpolyak/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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