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  • 2021
  • Working Paper

The Health Costs of Cost-Sharing

By: Amitabh Chandra, Evan Flack and Ziad Obermeyer
  • Format:Print
  • | Language:English
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Abstract

We use the design of Medicare’s prescription drug benefit program to demonstrate three facts about the health consequences of cost-sharing. First, we show that an as-if-random increase of 33.6% in out-of-pocket price (11.0 percentage points (p.p.) change in coinsurance, or $10.40 per drug) causes a 22.6% drop in total drug consumption ($61.20), and a 32.7% increase in monthly mortality (0.048 p.p.). Second, we trace this mortality effect to cutbacks in life-saving medicines like statins and antihypertensives, for which clinical trials show large mortality benefits. We find no indication that these reductions in demand affect only ‘low-value’ drugs; on the contrary, those at the highest risk of heart attack and stroke, who would benefit the most from statins and antihypertensives, cut back more on these drugs than lower risk patients. Similar patterns exist for other drug–disease pairs, and irrespective of socioeconomic circumstance. Finally, we document that when faced with complex, high-dimensional choice problems, patients respond in simple, perverse ways. Specifically, price increases cause 18.0% more patients (2.8 p.p.) to fill no drugs, regardless of how many drugs they had been on previously, or their health risks. This decision mechanically results in larger absolute reductions in utilization for those on many drugs. We conclude that cost-sharing schemes should be evaluated based on their overall impact on welfare, which can be very different from the price elasticity of demand.

Keywords

Cost-sharing; Impact; Health Care and Treatment; Insurance; Health; Consumer Behavior

Citation

Chandra, Amitabh, Evan Flack, and Ziad Obermeyer. "The Health Costs of Cost-Sharing." NBER Working Paper Series, No. 28439, February 2021.
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About The Author

Amitabh Chandra

Technology and Operations Management
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More from the Authors
  • Vertex and the Cure for Type 1 Diabetes By: Amitabh Chandra, William J Anderson and Silvia Mare
  • Achieving Universal Health Insurance Coverage in the United States: Addressing Market Failures or Providing a Social Floor? By: Katherine Baicker, Amitabh Chandra and Mark Shepard
  • Regulatory Incentives for Innovation: The FDA's Breakthrough Therapy Designation By: Amitabh Chandra, Jennifer Kao, Kathleen Miller and Ariel D. Stern
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