NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Private Provision of Social Insurance: Drug-specific Price Elasticities and Cost Sharing in Medicare Part D

Liran Einav, Amy Finkelstein, Maria Polyakova

NBER Working Paper No. 22277
Issued in May 2016
NBER Program(s):AG, HC, IO, PE

Standard theory suggests that optimal consumer cost-sharing in health insurance increases with the price elasticity of demand, yet publicly-provided drug coverage typically involves uniform cost-sharing across drugs. We investigate how private drug plans set cost-sharing in the context of Medicare Part D. We document substantial heterogeneity in the price elasticities of demand across more than 150 drugs and across more than 100 therapeutic classes, as well as substantial heterogeneity in the cost-sharing for different drugs within privately-provided plans. We find that private plans set higher consumer cost-sharing for drugs or classes with more elastic demand. Our findings suggest that benefit design may be more efficient in privately rather than publicly provided insurance.

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Document Object Identifier (DOI): 10.3386/w22277

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