Tiered co-payments, pricing, and demand in reference price markets for pharmaceuticals
Herr,Annika Suppliet,Moritz
Herr,Annika
Suppliet,Moritz
Abstract
Health insurance companies curb price-insensitive behavior and the moral hazard of insureds by means of cost-sharing, such as tiered co-payments or reference pricing in drug markets. This paper evaluates the effect of price limits –below which drugs are exempt from co-payments– on prices and on demand. First, using a difference-in-differences estimation strategy, we find that the new policy decreases prices by 5 percent for generics and increases prices by 4 percent for brand-name drugs in the German reference price market. Second, estimating a nested-logit demand model, we show that consumers appreciate co-payment exempt drugs and calculate lower price elasticities for brand-name drugs than for generics. This explains the different price responses of brand-name and generic drugs and shows that price-related co-payment tiers are an effective tool to steer demand to low-priced drugs.
Description
Date
2017-12
Journal Title
Journal ISSN
Volume Title
Publisher
Research Projects
Organizational Units
Journal Issue
Keywords
drug prices, cost-sharing, co-payments, reference pricing, regulation, firm behavior, health insurance, demand model, price elsaticity, J18 - Public Policy, L51 - Economics of Regulation, J11 - Demographic Trends, Macroeconomic Effects, and Forecasts, L11 - Production, Pricing, and Market Structure ; Size Distribution of Firms, SDG 1 - No Poverty
Citation
Herr, A & Suppliet, M 2017, 'Tiered co-payments, pricing, and demand in reference price markets for pharmaceuticals', Journal of Health Economics, vol. 56, pp. 19-29. https://doi.org/10.1016/j.jhealeco.2017.08.008
License
info:eu-repo/semantics/closedAccess