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

Kyoungrae Jung (), Roger Feldman () and A. McBean ()

International Journal of Health Economics and Management, 2014, vol. 14, issue 1, 19-40

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. Copyright Springer Science+Business Media New York 2014

Keywords: Non-linear pricing; Price elasticity; Prescription drug spending; Medicare Part D; D4; D12; I13; I18 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://hdl.handle.net/10.1007/s10754-013-9137-2 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:ijhcfe:v:14:y:2014:i:1:p:19-40

Ordering information: This journal article can be ordered from
http://www.springer. ... th/journal/10754/PS2

DOI: 10.1007/s10754-013-9137-2

Access Statistics for this article

International Journal of Health Economics and Management is currently edited by Leemore Dafny, Robert Town, Mark Pauly, David Dranove and Pedro Pita Barros

More articles in International Journal of Health Economics and Management from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().