• Annika Herr and Moritz Suppliet.
• Duesseldorf Institute for Competition Economics (DICE), Heinrich Heine University, Germany. Electronic address: annika.herr@dice.hhu.de.
• J Health Econ. 2017 Dec 1; 56: 19-29.

AbstractHealth insurance companies curb price-insensitive behavior and the moral hazard of insureds by means of cost-sharing, such as tiered co-payments or reference pricing in drug markets. This paper evaluates the effect of price limits - below which drugs are exempt from co-payments - on prices and on demand. First, using a difference-in-differences estimation strategy, we find that the new policy decreases prices by 5 percent for generics and increases prices by 4 percent for brand-name drugs in the German reference price market. Second, estimating a nested-logit demand model, we show that consumers appreciate co-payment exempt drugs and calculate lower price elasticities for brand-name drugs than for generics. This explains the different price responses of brand-name and generic drugs and shows that price-related co-payment tiers are an effective tool to steer demand to low-priced drugs.Copyright © 2017 Elsevier B.V. All rights reserved.

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