Demand Response, Service Selection, and Medical Adherence
Estimating consumer response to cost sharing is of long-standing research interest because of its implications for health care cost, service supply, and consumer behavior. This session consists of three papers, each with a distinct focus, that together illustrate how these aspects are interconnected. The first paper examines demand response to cost sharing at the service level. It estimates demand elasticities based on a two-part model of spending using variation in cost sharing between plans, across years and within years. An instrumental variable approach is employed to control for selection and endogenous cost sharing. The paper shows significant variation in elasticities across types of services. The second paper examines the role of demand response in health plans’ incentives to select services. Using earlier results on service level demand elasticities, the paper revises estimates of selection incentives using both a shadow price framework and a quantity-based rationing framework. It also assesses how risk adjustment, mixed payment, and reinsurance succeed at reducing the estimated incentives. The third paper estimates the effects of statins adherence on medical costs of Americans taking these drugs from 2007 to 2012. Using an instrumental variable approach, it finds that the out-of-pocket price is negatively correlated with statins adherence and that adherence is associated with fewer heart attacks and reduced medical expenditures in the following year. Through the lens of consumer adherence to prescribed medications, this paper provides new evidence on the cost consequences of cost sharing. All three papers use the Truven Analytics MarketScan database for empirical analysis.