Incentives and Selection Effects of Drug Coverage on Total Drug Expenditure: a Finite Mixture Approach

Murat Munkin and Pravin Trivedi

Health, Econometrics and Data Group (HEDG) Working Papers from HEDG, c/o Department of Economics, University of York

Abstract: This paper takes a nte mixture approach to model heterogeneity in incentives and selection effects of drug coverage on the total drug expenditure among the Medicare elderly US population. Evidence is found that the positive drug expenditures of the entire elderly popultion can be decomposed into two groups of relatively healthy with lower average expenditures and relatively unhealthy with higher average expenditures, accounting for approaximately 25% and 75% of the population, respectively. The incentive effects of drug insurance, i.e. ex post moral hazard, are much stronger in magnitude for the unhealthy group. There is also evidence of adverse selection into drug insurance, and this appears to be greater for the higher-expenditure component.

Date: 2009-07
New Economics Papers: this item is included in nep-hea and nep-ias
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Persistent link: https://EconPapers.repec.org/RePEc:yor:hectdg:09/22

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