Health Insurance, Price Changes, and the Demand for Pain Relief Drugs: Evidence from Medicare Part D

96 Pages Posted: 23 Dec 2018

See all articles by Aparna Soni

Aparna Soni

Indiana University - Kelley School of Business

Date Written: September 25, 2018

Abstract

Overdose deaths from prescription opioids are on the rise, and policymakers seek solutions to curb opioid misuse. Recent proposals call for price-based solutions, such as opioid taxes and removal of opioids from insurance formularies. However, there is limited evidence on how opioid consumption responds to price stimuli. This study addresses that gap by estimating the effects of prices on the utilization of opioids as well as other prescription painkillers. I use nationally representative individual-level data on prescription drug purchases to exploit the introduction of Medicare Part D in 2006 as an exogenous change in out-of-pocket drug prices. I find that new users have a relatively high price elasticity of demand for prescription opioids, and that consumers treat over-the-counter painkillers as substitutes for prescription painkillers. My results suggest that increasing out-of-pocket prices of opioids, through formulary design or taxes, may be effective in reducing new opioid use.

Keywords: Health insurance, Pain relief, Opioids, Medicare Part D, Elasticity

JEL Classification: I11, I12, I13

Suggested Citation

Soni, Aparna, Health Insurance, Price Changes, and the Demand for Pain Relief Drugs: Evidence from Medicare Part D (September 25, 2018). Kelley School of Business Research Paper No. 19-4. Available at SSRN: https://ssrn.com/abstract=3268968 or http://dx.doi.org/10.2139/ssrn.3268968

Aparna Soni (Contact Author)

Indiana University - Kelley School of Business ( email )

Bloomington, IN 47405
United States

HOME PAGE: http://www.aparnagsoni.com

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