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

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 "f

SUBMITTER: Einav L 

PROVIDER: S-EPMC4710380 | biostudies-literature | 2015 May

REPOSITORIES: biostudies-literature