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The moral hazard effects of consumer responses to targeted cost-sharing

Author

Listed:
  • Whaley, Christopher M.
  • Guo, Chaoran
  • Brown, Timothy T.

Abstract

This paper examines the effects of the reference pricing program implemented by the California Public Employees Retirement System (CalPERS) in 2012. The program uses targeted cost-sharing to incentivize patient price shopping. We find that the program leads to a 10.3% increase in the use of low-price providers and reduces the average cost per procedure by 12.5%. We further estimate that the program reduces medical spending by $218.8 per procedure, which we estimate is approximately 53.7% of the excessive spending that is due to patient choice of higher price providers caused by insurance coverage, at the expense of a $94.3 (or 12.5%) reduction in consumer surplus. The cost savings from the reference pricing program is about two to three times as large as the reduction from implementing a high-deductible health plan, while the accompanying consumer surplus reduction is much smaller under reference pricing.

Suggested Citation

  • Whaley, Christopher M. & Guo, Chaoran & Brown, Timothy T., 2017. "The moral hazard effects of consumer responses to targeted cost-sharing," Journal of Health Economics, Elsevier, vol. 56(C), pages 201-221.
  • Handle: RePEc:eee:jhecon:v:56:y:2017:i:c:p:201-221
    DOI: 10.1016/j.jhealeco.2017.09.012
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    Citations

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    Cited by:

    1. Annika Herr & Torben Stühmeier & Tobias Wenzel, 2023. "More cost‐sharing, less cost? Evidence on reference price drugs," Health Economics, John Wiley & Sons, Ltd., vol. 32(2), pages 413-435, February.
    2. Ackley, Calvin A., 2022. "Tiered cost sharing and health care demand," Journal of Health Economics, Elsevier, vol. 85(C).
    3. Whaley, Christopher M. & Brown, Timothy T., 2018. "Firm responses to targeted consumer incentives: Evidence from reference pricing for surgical services," Journal of Health Economics, Elsevier, vol. 61(C), pages 111-133.
    4. Xun Liu & Sen Lin & Lixing Liu & Fei Qian & Kun Zhang, 2020. "Exploring the Factors Triggering Occupational Ethics Risk of Technology Transaction in Chinese Construction Industry," IJERPH, MDPI, vol. 17(4), pages 1-18, February.
    5. Christopher Whaley & Timothy Brown & James Robinson, 2019. "Consumer Responses to Price Transparency Alone versus Price Transparency Combined with Reference Pricing," American Journal of Health Economics, MIT Press, vol. 5(2), pages 227-249, Spring.
    6. Aouad, Marion & Brown, Timothy T. & Whaley, Christopher M., 2019. "Reference pricing: The case of screening colonoscopies," Journal of Health Economics, Elsevier, vol. 65(C), pages 246-259.
    7. Timothy Tyler Brown & Juan Pablo Atal, 2019. "How robust are reference pricing studies on outpatient medical procedures? Three different preprocessing techniques applied to difference‐in differences," Health Economics, John Wiley & Sons, Ltd., vol. 28(2), pages 280-298, February.
    8. Marion Aouad & Timothy T. Brown & Christopher M. Whaley, 2021. "Understanding the distributional impacts of health insurance reform: Evidence from a consumer cost‐sharing program," Health Economics, John Wiley & Sons, Ltd., vol. 30(11), pages 2780-2793, November.
    9. Benjamin Handel & Nianyi Hong & Lynn M. Hua & Yuki Ito, 2023. "Employer risk‐adjustment transitions with inertial consumers: Evidence from CalPERS," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 90(1), pages 93-121, March.

    More about this item

    Keywords

    Reference pricing; Moral hazard; Insurance benefit design;
    All these keywords.

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private

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