Harvard Business School March 15, 2021
Small increases in cost cause patients to reduce their use of drugs with major benefits, ultimately causing their death. Since patient cost-sharing introduces large and deadly distortions into the cost-benefit calculus, payers should evaluate the merits of policies in light of their impact on health, not just on health care costs.
Author Abstract
We use the design of Medicare’s prescription drug benefit program to demonstrate three facts about the health consequences of cost-sharing. First, we show that small increases in out-of-pocket prices (11.0 percentage points (p.p.) change in coinsurance, or $10.40 per drug) causes a 22.6% drop in total drug consumption ($61.20), and a 32.7% increase in monthly mortality (0.048 p.p.). Second, we trace this...
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