A Primer on the Economics of Prescription Pharmaceutical Pricing in Health Insurance Markets, by Ernst R. Berndt, Thomas G. McGuire, and Joseph P. Newhouse (NBER working paper)
The pricing of medical products and services in the U.S. is notoriously complex. In health care, supply prices (those received by the manufacturer) are distinct from demand prices (those paid by the patient) due to health insurance. The insurer, in designing the benefit, decides what prices patients pay out-of-pocket for drugs and other products. In this primer we characterize cost and supply conditions in markets for generic and branded drugs, and apply basic tools of microeconomics to describe how an insurer, acting on behalf of its enrollees, would set demand prices for drugs. Importantly, we show how the market structure on the supply side, characterized alternatively by monopoly (unique brands), Bertrand differentiated product markets (therapeutic competition), and competition (generics), influences the insurer’s choices about demand prices. This perspective sheds light on the choice of coinsurance versus copayments, the structure of tiered formularies, and developments in the retail market.
Testing for the Role of Prejudice in Emergency Departments Using Bounceback Rates, by Shamena Anwar, Hanming Fang (NBER working paper)
We propose and empirically implement a test for the presence of racial prejudice among emergency department (ED) physicians based on the bounceback rates of the patients who were discharged after receiving diagnostic tests during their initial ED visits. A bounceback is defined as a return to the ED within 72 hours of being initially discharged. Based on a plausible model of physician behavior, we show that differential bounceback rates across patients of different racial groups who are discharged after receiving diagnostic tests from their ED visits are informative of the racial prejudice of the physicians. Applying the test to administrative data of ED visits from California and New Jersey, we do not find evidence of prejudice against black and Hispanic patients. Our finding suggests that, at least in the emergency department setting, taste based discrimination does not play an important role in the racial disparities in health care.
The Individual Insurance Market Before Reform: Low Premiums and Low Benefits, by Heidi Whitmore and Jon Gabel (MCRR)
Based on analyses of individual market health plans sold through ehealthinsurance and enrollment information collected from individual market carriers, this article profiles the individual health insurance market in 2007, before health reform. The article examines premiums, plan enrollment, cost sharing, and covered benefits and compares individual and group markets. Premiums for the young are lower than in the group market but higher for older people. Cost sharing is substantial in the individual insurance market. Seventy-eight percent of people were enrolled in plans with deductibles for single coverage, which averaged $2,117. Annual out-of-pocket maximums averaged $5,271. Many plans do not cover important benefits. Twelve percent of individually insured persons had no coverage for office visits and only 43% have maternity benefits in their basic coverage. With the advent of health exchanges and new market rules in 2014, covered benefits may become richer, cost sharing will decline, but premiums for the young will rise.
Changing Source of Prescription Fills and Medication Gaps, by Julia C. Prentice, Steven D. Pizer, and Antoun Houranieh (AJPB)
Objective: To measure the relationship between switching between the Department of Veterans Affairs (VA) and Medicaid for prescriptions and medication gaps.
Study Design: Retrospective observational study.
Methods: Prescription drug claims for alpha-blockers, beta-blockers, angiotensin-converting enzyme (ACE) inhibitors, calcium channel blockers, and diuretics were extracted from VA and Medicaid databases in 1999 and 2000. The dependent variable was the number of days without medication divided by the number of treatment days over a 1-year period. The main explanatory variable of interest was whether an individual switched between the VA and Medicaid when filling prescriptions for drugs. Ordinary least squares and instrumental variables regressions examined the effect of switching systems on gaps in medication, controlling for health status, therapy regime, and demographics.
Results: Switching systems was positively and significantly associated with more gaps in medication when models combined all drug classes. When models for each drug class were predicted separately, the effect remained significant for calcium channel blockers and bordered on significant for ACE inhibitors. No evidence of a relationship between switching and medication gaps was seen for beta-blockers, alpha-blockers, or diuretics.
Conclusions: There was a significant and positive relationship between switching the healthcare system where prescriptions were filled and medication gaps when all drug classes were combined. Healthcare policymakers and providers should pay particular attention to patients who are switching payers for drug coverage because their medication regime may be compromised.
The ACO Model — A Three-Year Financial Loss? by Trent T. Haywood and Keith C. Kosel (NEJM)
