The Health Costs of Cost-Sharing

Amitabh Chandra, Evan Flack and Ziad Obermeyer

No 28439, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: What happens when patients suddenly stop taking their medications? We study the health consequences of drug interruptions caused by large, abrupt, and arbitrary changes in price. Medicare’s prescription drug benefit as-if-randomly assigns 65-year-olds a drug budget as a function of their birth month, beyond which out-of-pocket costs suddenly increase. Those facing smaller budgets consume fewer drugs and die more: 0.0164 percentage points per month (13.9%) for each $100 per month budget decrease (24.4%). This estimate is robust to a range of falsification checks, and lies in the 97.4th percentile of 541 placebo estimates, formed in similar populations that lack the same idiosyncratic budget policy. Several facts help make sense of this large effect. First, patients stop taking drugs that are both ‘high-value,’ and suspected to cause life-threatening withdrawal syndromes when stopped. Second, using machine learning, we identify patients at the highest risk of drug-preventable adverse events. Contrary to the predictions of standard economic models, high-risk patients (e.g., those most likely to have a heart attack) cut back more than low-risk patients on exactly those drugs that would benefit them the most (e.g., statins). Finally, patients appear unaware of these risks. In a survey of 65-year-olds, only one-third believe that missing their drugs for up to a month could have any serious consequences. We conclude that, far from curbing waste, cost-sharing policies cause patients to miss opportunities to buy health at very low cost ($11,321 per life-year).

JEL-codes: I12 I13 (search for similar items in EconPapers)
Date: 2021-02
New Economics Papers: this item is included in nep-hea and nep-ias
Note: AG EH
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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