MIT Libraries homeMIT Libraries logoDSpace@MIT

MIT
View Item 
  • DSpace@MIT Home
  • MIT Open Access Articles
  • MIT Open Access Articles
  • View Item
  • DSpace@MIT Home
  • MIT Open Access Articles
  • MIT Open Access Articles
  • View Item
JavaScript is disabled for your browser. Some features of this site may not work without it.

The Response of Drug Expenditure to Nonlinear Contract Design: Evidence from Medicare Part D *

Author(s)
Einav, Liran; Finkelstein, Amy; Schrimpf, Paul
Thumbnail
Downloadnihms749299.pdf (2.142Mb)
OPEN_ACCESS_POLICY

Open Access Policy

Creative Commons Attribution-Noncommercial-Share Alike

Terms of use
Creative Commons Attribution-Noncommercial-Share Alike http://creativecommons.org/licenses/by-nc-sa/4.0/
Metadata
Show full item record
Abstract
We study the demand response to nonlinear price schedules using data on insurance contracts and prescription drug purchases in Medicare Part D. We exploit the kink in individuals' budgets set created by the famous "donut hole," where insurance becomes discontinuously much less generous on the margin, to provide descriptive evidence of the drug purchase response to a price increase. We then specify and estimate a simple dynamic model of drug use that allows us to quantify the spending response along the entire nonlinear budget set. We use the model for counterfactual analysis of the increase in spending from "filling" the donut hole, as will be required by 2020 under the Affordable Care Act. In our baseline model, which considers spending decisions within a single year, we estimate that filling the donut hole will increase annual drug spending by about $150, or about 8 percent. About one-quarter of this spending increase reflects anticipatory behavior, coming from beneficiaries whose spending prior to the policy change would leave them short of reaching the donut hole. We also present descriptive evidence of cross-year substitution of spending by individuals who reach the kink, which motivates a simple extension to our baseline model that allows-in a highly stylized way-for individuals to engage in such cross-year substitution. Our estimates from this extension suggest that a large share of the $150 drug spending increase could be attributed to cross-year substitution, and the net increase could be as little as $45 a year.
Date issued
2015-02
URI
http://hdl.handle.net/1721.1/113885
Department
Massachusetts Institute of Technology. Department of Economics
Journal
The Quarterly Journal of Economics
Publisher
Oxford University Press (OUP)
Citation
Einav, Liran, Amy Finkelstein, and Paul Schrimpf. “The Response of Drug Expenditure to Nonlinear Contract Design: Evidence from Medicare Part D *.” The Quarterly Journal of Economics 130, no. 2 (February 8, 2015): 841–899.
Version: Author's final manuscript
ISSN
0033-5533
1531-4650

Collections
  • MIT Open Access Articles

Browse

All of DSpaceCommunities & CollectionsBy Issue DateAuthorsTitlesSubjectsThis CollectionBy Issue DateAuthorsTitlesSubjects

My Account

Login

Statistics

OA StatisticsStatistics by CountryStatistics by Department
MIT Libraries homeMIT Libraries logo

Find us on

Twitter Facebook Instagram YouTube RSS

MIT Libraries navigation

SearchHours & locationsBorrow & requestResearch supportAbout us
PrivacyPermissionsAccessibility
MIT
Massachusetts Institute of Technology
Content created by the MIT Libraries, CC BY-NC unless otherwise noted. Notify us about copyright concerns.