Anticipatory Behavior in Response to Medicare Part D's Coverage Gap

Area of Science:

• Health Economics
• Pharmaceutical Policy
• Behavioral Economics

Background:

• Medicare Part D features discontinuous copayments based on drug spending thresholds.
• Beneficiaries face 25% in the initial phase, 100% in the coverage gap, and 5% in the catastrophic phase.

Purpose of the Study:

• To investigate whether Medicare Part D beneficiaries anticipate and adjust medication consumption based on upcoming copayment changes.
• To quantify the impact of anticipated end-of-year price changes on early prescription behavior.

Main Methods:

• Utilized variation in beneficiary birth-months to create exogenous changes in end-of-year drug prices.
• Employed a difference-in-differences approach, comparing beneficiaries with and without a coverage gap (low-income subsidy recipients).
• Analyzed medication use in the first three months post-enrollment.

Main Results:

• Found strong evidence of anticipatory behavior, with price elasticities ranging from -0.2 to -0.5.
• Observed beneficiaries adjusting consumption by altering prescription quantities, not by switching drug types (brand vs. generic).

Conclusions:

• Medicare Part D beneficiaries exhibit forward-looking behavior regarding drug costs.
• Consumption adjustments are primarily driven by quantity changes in response to anticipated price increases, highlighting the importance of benefit design on medication adherence.