|Selected research from leading health care experts whose findings have a direct bearing on public policies effecting medical progress. Research is chosen based on its quality and relevance by the Medical Progress Today editorial staff.||
Integrated Insurance Design in the Presence of Multiple Medical Technologies
Goldman and Philipson argue that insofar as prescription drugs are substitutes for other forms of health care, like doctor's offices and emergency room visits, optimal insurance benefit design (at least for certain chronic disease categories) should have very low or even negative copays for prescription drugs.
The classic theory of moral hazard concerns the insurance of a single good and predicts that coinsurance is larger when the elasticity of demand is higher and when small risks are insured. We extend this analysis to the insurance of multiple goods; for example, the simultaneous insurance of medical services and prescription drugs. We show that when multiple goods are either complements or substitutesso that a change in coinsurance for one service affects the demand of othersthe classic moral hazard results do not hold.
The authors note that:
In sum, the preponderance of evidence suggests strong negative crossprice elasticities between drugs and other medical spending, at least for patients with chronic disease. The behavioral mechanism is almost surely compliance (John A.Rizzo and W. Robert Simons, 1997; L. Wei et al, 2002). For example, Dana P. Goldman et al (2006) investigated the relationship between compliance and subsequent outcomes for patients who had initiated statin therapy in the previous two to five years. They found that full compliance with cholesterollowering therapy reduces use of hospital services by 25% among high risk patients, demonstrating a substantial crossprice elasticity between drugs and hospital services among certain chronicallyill populations and for certain drugs. Other studies find similar effects for asthma and diabetes.
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