THE RESPONSE OF DRUG EXPENDITURE TO NON-LINEAR CONTRACT DESIGN: EVIDENCE FROM MEDICARE PART D

The Quarterly Journal of Economics
Liran EinavPaul Schrimpf

Abstract

We study the demand response to non-linear price schedules using data on insurance contracts and prescription drug purchases in Medicare Part D. We exploit the kink in individuals' budget set created by the famous "donut hole," where insurance becomes discontinuously much less generous on the margin, to provide descriptive evidence of the drug purchase response to a price increase. We then specify and estimate a simple dynamic model of drug use that allows us to quantify the spending response along the entire non-linear budget set. We use the model for counterfactual analysis of the increase in spending from "filling" the donut hole, as will be required by 2020 under the Affordable Care Act. In our baseline model, which considers spending decisions within a single year, we estimate that "filling" the donut hole will increase annual drug spending by about $150, or about 8 percent. About one-quarter of this spending increase reflects "anticipatory" behavior, coming from beneficiaries whose spending prior to the policy change would leave them short of reaching the donut hole. We also present descriptive evidence of cross-year substitution of spending by individuals who reach the kink, which motivates a simple extension to our base...Continue Reading

References

Jan 1, 1969·The American Journal of Orthopsychiatry·M Alpert, H Alpert
Jan 27, 2004·Journal of Neuroimmunology·Guy A Cabral, Francine Marciano-Cabral
Mar 18, 2004·The Rand Journal of Economics·Marcos Vera-Hernández
Jan 9, 2008·Annals of Internal Medicine·Wesley YinG Caleb Alexander
Sep 22, 2009·The Journal of Economic Perspectives : a Journal of the American Economic Association·Mark DugganFiona Scott Morton
May 11, 2010·Journal of Public Economics·Darius Lakdawalla, Neeraj Sood
Nov 5, 2010·The New England Journal of Medicine·Yuting ZhangJoseph P Newhouse
Aug 13, 2011·The Quarterly Journal of Economics·Raj ChettyLuigi Pistaferri
Aug 23, 2011·The American Economic Review·Jason Abaluck, Jonathan Gruber
Mar 29, 2012·The Quarterly Journal of Economics·Jeffrey R KlingMarian V Wrobel
Dec 7, 2013·Journal of Health Economics·Florian HeissJoachim Winter
Dec 7, 2013·Journal of Health Economics·Geoffrey F JoyceDana P Goldman
Jan 1, 2013·The Journal of Economic Perspectives : a Journal of the American Economic Association·Aviva Aron-DineAmy Finkelstein
Jan 16, 2016·The Review of Economics and Statistics·Aviva Aron-DineMark Cullen
Mar 1, 2010·The American Economic Review·Mark Duggan, Fiona Scott Morton
Oct 1, 2012·The American Economic Review·Jonathan D KetchamM Christopher Roebuck
Dec 1, 2013·The American Economic Review·Benjamin R Handel

❮ Previous
Next ❯

Citations

Jan 11, 2016·Health Economics·Cameron M Kaplan, Yuting Zhang
Jul 19, 2016·American Economic Journal. Applied Economics·Liran EinavPaul Schrimpf
Jan 16, 2016·The Review of Economics and Statistics·Aviva Aron-DineMark Cullen
Feb 5, 2015·Health Economics·Michael GerfinChristian Schmid
Aug 6, 2016·Health Economics·Helmut FarbmacherAmelie Wuppermann
Sep 18, 2018·Journal of the European Economic Association·Liran Einav, Amy Finkelstein
Sep 21, 2018·American Economic Journal. Economic Policy·Liran EinavMaria Polyakova
Feb 14, 2021·Journal of Health Economics·Michael ChernewFiona Scott Morton
Dec 18, 2018·Journal of Public Economics·Jason AbaluckAshley Swanson

❮ Previous
Next ❯

Related Concepts

Trending Feeds

COVID-19

Coronaviruses encompass a large family of viruses that cause the common cold as well as more serious diseases, such as the ongoing outbreak of coronavirus disease 2019 (COVID-19; formally known as 2019-nCoV). Coronaviruses can spread from animals to humans; symptoms include fever, cough, shortness of breath, and breathing difficulties; in more severe cases, infection can lead to death. This feed covers recent research on COVID-19.

Blastomycosis

Blastomycosis fungal infections spread through inhaling Blastomyces dermatitidis spores. Discover the latest research on blastomycosis fungal infections here.

Nuclear Pore Complex in ALS/FTD

Alterations in nucleocytoplasmic transport, controlled by the nuclear pore complex, may be involved in the pathomechanism underlying multiple neurodegenerative diseases including Amyotrophic Lateral Sclerosis and Frontotemporal Dementia. Here is the latest research on the nuclear pore complex in ALS and FTD.

Applications of Molecular Barcoding

The concept of molecular barcoding is that each original DNA or RNA molecule is attached to a unique sequence barcode. Sequence reads having different barcodes represent different original molecules, while sequence reads having the same barcode are results of PCR duplication from one original molecule. Discover the latest research on molecular barcoding here.

Chronic Fatigue Syndrome

Chronic fatigue syndrome is a disease characterized by unexplained disabling fatigue; the pathology of which is incompletely understood. Discover the latest research on chronic fatigue syndrome here.

Evolution of Pluripotency

Pluripotency refers to the ability of a cell to develop into three primary germ cell layers of the embryo. This feed focuses on the mechanisms that underlie the evolution of pluripotency. Here is the latest research.

Position Effect Variegation

Position Effect Variagation occurs when a gene is inactivated due to its positioning near heterochromatic regions within a chromosome. Discover the latest research on Position Effect Variagation here.

STING Receptor Agonists

Stimulator of IFN genes (STING) are a group of transmembrane proteins that are involved in the induction of type I interferon that is important in the innate immune response. The stimulation of STING has been an active area of research in the treatment of cancer and infectious diseases. Here is the latest research on STING receptor agonists.

Microbicide

Microbicides are products that can be applied to vaginal or rectal mucosal surfaces with the goal of preventing, or at least significantly reducing, the transmission of sexually transmitted infections. Here is the latest research on microbicides.

Related Papers

The New England Journal of Medicine
Yuting ZhangJoseph P Newhouse
Journal of Health Economics
Yiyan Liu, Ginger Zhe Jin
JAMA : the Journal of the American Medical Association
Howard Bauchner
Inquiry : a Journal of Medical Care Organization, Provision and Financing
J P Vistnes, J S Banthin
© 2022 Meta ULC. All rights reserved