TY - JOUR

T1 - Tiered co-payments, pricing, and demand in reference price markets for pharmaceuticals

AU - Herr, Annika

AU - Suppliet, Moritz

N1 - Funding Information: We would like to thank two anonymous referees, the editor Martin Chalkley, Tomaso Duso, Christopher J. Garmon, Germain Gaudin, Tobias Klein, Jonathan Kolstad, Karine Lamiraud, Martin Salm, Hendrik Schmitz, Pravin K. Trivedi, and Tobias Wenzel for helpful comments and suggestions. We thank the participants of numerous seminars and conferences for their valuable input. This research was supported by the DFG (grant HE 6825/2-1 ) and the SFF (Heinrich Heine University).

PY - 2017/12

Y1 - 2017/12

N2 - 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.

AB - 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.

KW - Co-payments

KW - Cost-sharing

KW - Demand model

KW - Drug prices

KW - Firm behavior

KW - Health insurance

KW - Price elasticity

KW - Reference pricing

KW - Regulation

UR - http://www.scopus.com/inward/record.url?scp=85030114148&partnerID=8YFLogxK

U2 - 10.1016/j.jhealeco.2017.08.008

DO - 10.1016/j.jhealeco.2017.08.008

M3 - Article

C2 - 28964941

AN - SCOPUS:85030114148

VL - 56

SP - 19

EP - 29

JO - Journal of health economics

JF - Journal of health economics

SN - 0167-6296

ER -