Moral Hazard in Drug Purchases

Jouko Verho and Jarkko Harju

No 12, Working Papers from Finnish Centre of Excellence in Tax Systems Research

Abstract: We study the moral hazard effects of the drug copayment threshold in Finland using detailed prescription drug purchase data. The analysis reveals that the average drug costs increase discontinuously by 17% at the threshold above which out-of-pocket drug costs decrease substantially. Our results suggest an average price elasticity of -0.17, which indicates evident moral hazard costs. Approximately 80% of the overall effect is due to individuals buying drugs in larger quantities rather than purchasing higher-priced drugs. The heterogeneity analysis suggests that the responses are largest for drug categories taken on an as-needed rather than a regular basis.

Keywords: Prescription drugs; Moral hazard; Health insurance (search for similar items in EconPapers)
JEL-codes: D12 H51 I10 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2023-05
New Economics Papers: this item is included in nep-hea
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Published in FIT Working Paper Series, Finnish Center of Excellence in Tax Systems Research

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Related works:
Working Paper: Moral Hazard in Drug Purchases (2023)
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