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

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.     

When co-payments for physician visits can affect supply as well as demand: findings from a natural experiment in Israel's national health insurance system

In 1998, Israel's national health insurance system introduced a modest co-payment for visits to specialist physicians. This study takes advantage of a natural experiment in which 15% of the population--the poor and disabled--was exempted from these co-payments. It used the micro-level panel data of three large health plans on the physician visits of 50,000 members per plan in 1997-2001. The data indicate that, following introduction of the co-payment, specialist visits increased among non-exempt members, relative to exempt members, of two health plans that together account for two-thirds of the population. This paper illustrates how, unlike the Health Insurance Experiment and other US studies of cost sharing, the structure of the co-payment in Israel may have inadvertently limited the incentive to decrease consumer demand and may have created an incentive for the health plans to increase visit rates, especially among the non-exempt members. Other countries that have implemented co-payment systems with exemptions may benefit from the Israeli experience in designing and evaluating their systems.     

Effects of cost sharing on physician utilization under favourable conditions for supplier-induced demand

The effects of cost sharing on the demand for ambulatory care in experimental circumstances are well understood since the Rand Health Insurance Experiment (HIE). However, in a non-experimental real-world context, supplier-induced demand of doctors might erode some of the significant negative out-of-pocket price elasticity identified in the HIE. Belgium is an interesting test case for this hypothesis because it has relatively high rates of patient cost sharing in its public health insurance system and a very high density of physicians, all remunerated fee-for-service. We have exploited the price variation generated by a substantial increase in patient co-payment rates in 1994 to estimate out-of-pocket price elasticities for three groups of users, and for three types of services using a fixed-effects model in levels and in differences. We obtain significant out-of-pocket price elasticities for the general population in the range from -0.39 to -0.28 for GP home visits, -0.16 to -0.12 for GP office visits and -0.10 for specialist visits. The estimates were generally lower and less significant for the groups of elderly and disabled. The differences we find in price responsiveness appear to be fairly robust and consistent with the HIE predictions. These results suggest that--at least in the short run--non-experimental utilization effects of cost sharing are very similar to the experimental evidence, even in a situation of favourable conditions for supplier-induced demand.     

Utilisation of physician services in the 50+ population: the relative importance of individual versus institutional factors in 10 European countries

We analysed the relative importance of individual versus institutional factors in explaining variations in the utilisation of physician services among the 50+ in ten European countries. The importance of the latter was investigated, distinguishing between organisational (explicit) and cultural (implicit) institutional factors, by analysing the influence of supply side factors, such as physician density and physician reimbursement, and demand side factors, such as co-payment and gate-keeping, while controlling for a number of individual characteristics, using cross-national individual-level data from SHARE. Individual differences in health status accounted for about 50% of the between-country variation in physician visits, while the organisational and cultural factors considered each accounted for about 15% of the variation. The organisational variables showed the expected signs, with higher physician density being associated with more visits and higher co-payment, gate-keeping, and salary reimbursement being associated with less visits. When analysing specialist visits separately, however, organisational and cultural factors played a greater role, each accounting for about 30% of the between-country variation, whereas individual health differences only accounted for 11% of the variation.