Demand for prescription drugs under non-linear pricing in Medicare Part D

Jeah (Kyoungrae) Jung, Roger Feldman, A. Marshall McBean

Research output: Contribution to journalArticle

3 Citations (Scopus)

Abstract

We estimate the price elasticity of prescription drug use in Medicare Part D, which features a non-linear price schedule due to a coverage gap. We analyze patterns of drug utilization prior to the coverage gap, where the "effective price" is higher than the actual copayment for drugs because consumers anticipate that more spending will make them more likely to reach the gap. We find that enrollees' total pre-gap drug spending is sensitive to their effective prices: the estimated price elasticity of drug spending ranges between -0.14 and -0.36. This finding suggests that filling in the coverage gap, as mandated by the health care reform legislation passed in 2010, will influence drug utilization prior to the gap. A simulation analysis indicates that closing the gap could increase Part D spending by a larger amount than projected, with additional pre-gap costs among those who do not hit the gap.

Original languageEnglish (US)
Pages (from-to)19-40
Number of pages22
JournalInternational Journal of Health Care Finance and Economics
Volume14
Issue number1
DOIs
StatePublished - Jan 1 2014

Fingerprint

Medicare Part D
Prescription Drugs
pricing
medication
drug
Costs and Cost Analysis
demand
Drug Utilization
price elasticity
coverage
Elasticity
utilization
Pharmaceutical Preparations
Health Care Reform
Legislation
drug use
Appointments and Schedules
legislation
Prescription drugs
Medicare

All Science Journal Classification (ASJC) codes

  • Health(social science)
  • Finance
  • Economics, Econometrics and Finance(all)

Cite this

@article{7415f12fff4d471a8a36f0a93d488d36,
title = "Demand for prescription drugs under non-linear pricing in Medicare Part D",
abstract = "We estimate the price elasticity of prescription drug use in Medicare Part D, which features a non-linear price schedule due to a coverage gap. We analyze patterns of drug utilization prior to the coverage gap, where the {"}effective price{"} is higher than the actual copayment for drugs because consumers anticipate that more spending will make them more likely to reach the gap. We find that enrollees' total pre-gap drug spending is sensitive to their effective prices: the estimated price elasticity of drug spending ranges between -0.14 and -0.36. This finding suggests that filling in the coverage gap, as mandated by the health care reform legislation passed in 2010, will influence drug utilization prior to the gap. A simulation analysis indicates that closing the gap could increase Part D spending by a larger amount than projected, with additional pre-gap costs among those who do not hit the gap.",
author = "Jung, {Jeah (Kyoungrae)} and Roger Feldman and McBean, {A. Marshall}",
year = "2014",
month = "1",
day = "1",
doi = "10.1007/s10754-013-9137-2",
language = "English (US)",
volume = "14",
pages = "19--40",
journal = "International Journal of Health Care Finance and Economics",
issn = "1389-6563",
publisher = "Kluwer Academic Publishers",
number = "1",

}

Demand for prescription drugs under non-linear pricing in Medicare Part D. / Jung, Jeah (Kyoungrae); Feldman, Roger; McBean, A. Marshall.

In: International Journal of Health Care Finance and Economics, Vol. 14, No. 1, 01.01.2014, p. 19-40.

Research output: Contribution to journalArticle

TY - JOUR

T1 - Demand for prescription drugs under non-linear pricing in Medicare Part D

AU - Jung, Jeah (Kyoungrae)

AU - Feldman, Roger

AU - McBean, A. Marshall

PY - 2014/1/1

Y1 - 2014/1/1

N2 - We estimate the price elasticity of prescription drug use in Medicare Part D, which features a non-linear price schedule due to a coverage gap. We analyze patterns of drug utilization prior to the coverage gap, where the "effective price" is higher than the actual copayment for drugs because consumers anticipate that more spending will make them more likely to reach the gap. We find that enrollees' total pre-gap drug spending is sensitive to their effective prices: the estimated price elasticity of drug spending ranges between -0.14 and -0.36. This finding suggests that filling in the coverage gap, as mandated by the health care reform legislation passed in 2010, will influence drug utilization prior to the gap. A simulation analysis indicates that closing the gap could increase Part D spending by a larger amount than projected, with additional pre-gap costs among those who do not hit the gap.

AB - We estimate the price elasticity of prescription drug use in Medicare Part D, which features a non-linear price schedule due to a coverage gap. We analyze patterns of drug utilization prior to the coverage gap, where the "effective price" is higher than the actual copayment for drugs because consumers anticipate that more spending will make them more likely to reach the gap. We find that enrollees' total pre-gap drug spending is sensitive to their effective prices: the estimated price elasticity of drug spending ranges between -0.14 and -0.36. This finding suggests that filling in the coverage gap, as mandated by the health care reform legislation passed in 2010, will influence drug utilization prior to the gap. A simulation analysis indicates that closing the gap could increase Part D spending by a larger amount than projected, with additional pre-gap costs among those who do not hit the gap.

UR - http://www.scopus.com/inward/record.url?scp=84897964871&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=84897964871&partnerID=8YFLogxK

U2 - 10.1007/s10754-013-9137-2

DO - 10.1007/s10754-013-9137-2

M3 - Article

C2 - 24214101

AN - SCOPUS:84897964871

VL - 14

SP - 19

EP - 40

JO - International Journal of Health Care Finance and Economics

JF - International Journal of Health Care Finance and Economics

SN - 1389-6563

IS - 1

ER -