Private Provision of Social Insurance: Drug-Specific Price Elasticities and Cost Sharing in Medicare Part D

Abstract

We explore how private drug plans set cost sharing in the context of Medicare Part D. While publicly provided drug coverage typically involves uniform cost sharing across drugs, we document substantial heterogeneity in the cost sharing for different drugs within privately provided plans. We also document that private plans systematically set higher consumer cost sharing for drugs or classes associated with more elastic demand; to do so, we estimate price elasticities of demand across more than 150 drugs and across more than 100 therapeutic classes. We conclude by discussing the various channels that likely affect private plans’ cost-sharing decisions. (JEL G22, H51, I13, I18, L11, L65)