Private provision of social insurance: drug-specific price elasticities and cost sharing in Medicare Part D

We explore how private drug plans set cost-sharing in the context of Medicare Part D. While publicly-provided drug coverage typically involves uniform cost-sharing across drugs, we document substantial heterogeneity in the cost-sharing for different drugs within privately-provided plans. We also document that private plans systematically set higher consumer cost sharing for drugs or classes associated with more elastic demand; to do so we estimate price elasticities of demand across more than 150 drugs and across more than 100 therapeutic classes. We conclude by discussing the various channels that likely affect private plans’ cost-sharing decisions. JEL classification numbers: D12, G22, H51, I13