The Health Costs of Cost Sharing

Abstract

Abstract What happens when patients suddenly stop their medications? We study the health consequences of drug interruptions caused by large, abrupt, and arbitrary changes in price. Medicare’s prescription drug benefit as-if-randomly assigns 65-year-olds a drug budget as a function of their birth month, beyond which out-of-pocket costs suddenly increase. Those facing smaller budgets consume fewer drugs and die more: mortality increases 0.0164 percentage points per month (13.9%) for each $100 per month budget decrease (24.4%). This estimate is robust to a range of falsification checks and lies in the 97.8th percentile of 544 placebo estimates from similar populations that lack the same idiosyncratic budget policy. Several facts help make sense of this large effect. First, patients stop taking drugs that are both high value and suspected to cause life-threatening withdrawal syndromes when stopped. Second, using machine learning, we identify patients at the highest risk of drug-preventable adverse events. Contrary to the predictions of standard economic models, high-risk patients (e.g., those most likely to have a heart attack) cut back more than low-risk patients on exactly those drugs that would benefit them the most (e.g., statins). Finally, patients appear unaware of these risks. In a survey of 65-year-olds, only one-third believe that stopping their drugs for up to a month could have any serious consequences. We conclude that far from curbing waste, cost sharing is itself highly inefficient, resulting in missed opportunities to buy health at very low cost ($11,321 per life-year).