We are thankful for comments from Rich Hirth, Fiona Scott Morton, Haiden Huskamp, David Ridley, Jura Liaukonyte, and participants at the American Economic Association meetings, the Annual Health Economic Conference in Charleston, the NBER, Johns Hopkins University, and the International Industrial Organization Conference.
How Does Cost-Sharing Affect Drug Purchases? Insurance Regimes in the Private Market for Prescription Drugs
Article first published online: 28 SEP 2010
© 2010 Wiley Periodicals, Inc.
Journal of Economics & Management Strategy
Volume 19, Issue 3, pages 545–574, Fall 2010
How to Cite
Dor, A. and Encinosa, W. (2010), How Does Cost-Sharing Affect Drug Purchases? Insurance Regimes in the Private Market for Prescription Drugs. Journal of Economics & Management Strategy, 19: 545–574. doi: 10.1111/j.1530-9134.2010.00261.x
- Issue published online: 28 SEP 2010
- Article first published online: 28 SEP 2010
Insurance for prescription drugs is characterized by two types of cost-sharing: flat copayments and variable coinsurance. We develop a theoretical model to show that refill purchases of drugs are lower under coinsurance due to the consumer’s exposure to variation in drug prices. We test this empirically using claims data from eight large firms. Propensity score methods are used to create matched samples for the two insurance regimes. We find that when coinsurance and copayments have the same expected out-of-pocket of $9, at least 34% of patients under copayments would fully refill their medication over 90 days, compared to only 24% under coinsurance.