“The Health Costs of Cost-Sharing” with Amitabh Chandra and Ziad Obermeyer, NBER WP #28439
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 an as-if-random increase of 33.6% in out-of-pocket price (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 mortality effect to cutbacks in life-saving medicines like statins and antihypertensives, for which clinical trials show large mortality benefits. We find no indication that these reductions in demand affect only ‘low-value’ drugs; on the contrary, those at the highest risk of heart attack and stroke, who would benefit the most from statins and antihypertensives, cut back more on these drugs than lower risk patients. Similar patterns exist for other drug–disease pairs, and irrespective of socioeconomic circumstance. Finally, we document that when faced with complex, high-dimensional choice problems, patients respond in simple, perverse ways. Specifically, price increases cause 18.0% more patients (2.8 p.p.) to fill no drugs, regardless of how many drugs they had been on previously, or their health risks. This decision mechanically results in larger absolute reductions in utilization for those on many drugs. We conclude that cost-sharing schemes should be evaluated based on their overall impact on welfare, which can be very different from the price elasticity of demand.
Research in Progress
“Responsding to Decision Maker Tendencies: Evidence from Major League Baseball”
Abstract: How do people learn about, and respond to the tendencies of a decision maker? I study this question in the context of batters and umpires in Major League Baseball (MLB). Using detailed in-game data on pitch location and outcomes, I show that batters learn about a given umpire’s strike zone over the course of the game. Batters are more likely to swing when the home plate umpire tends to call more strikes than balls, but only in later innings, after they have had the opportunity to personally study the umpire’s calls. This pattern is particularly pronounced on pitches where one would expect the umpire to have more discretion: those close to edge of the strike zone. Because umpires (and thus their tendencies) are quasi-randomly assigned to games, I interpret this as the causal effect of the umpire’s tendency on the batter’s decision. While many may view baseball as unimportant, human ability to learn about tendencies has implications for a wide array of other areas such as how both prosecutors and defense attorneys adapts their strategies given a judge’s tendencies.
“Quality Differences Across Generic Drug Manufacturers” with Amitabh Chandra and Ziad Obermeyer