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

Annika Herr, Moritz Suppliet

Research output: Contribution to journalArticleScientificpeer-review

3 Citations (Scopus)

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.
Original languageEnglish
Pages (from-to)19-29
JournalJournal of Health Economics
Volume56
Early online dateSep 2017
DOIs
Publication statusPublished - Dec 2017

Keywords

  • drug prices
  • cost-sharing
  • co-payments
  • reference pricing
  • regulation
  • firm behavior
  • health insurance
  • demand model
  • price elsaticity

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