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The January Effect: Medication Reinitiation Among Medicare Part D Beneficiaries

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  • Cameron Kaplan
  • Yuting Zhang

Abstract

The Medicare prescription drug program (Part D) standard benefit includes deductible, initial coverage, coverage gap and catastrophic coverage phases. As beneficiaries enter each phase, their out‐of‐pocket medication costs change discontinuously. The benefit cycle restarts on 1 January of the next year. Taking advantage of variation in drug coverage, we study how individuals reinitiate discontinued medications in response to the non‐linear price schedule. Because some beneficiaries who receive low‐income subsidies (LIS) have zero or fixed small copayments throughout the year, we perform a difference‐in‐difference analysis by using the LIS group as a comparison. We find that individuals delay reinitiating important medications in December and are significantly more likely to reinitiate in January than in other months. Although we find some evidence that reinitiation is lower in the final months of the year, it is mostly driven by those who face higher prices due to the coverage gap. Our study suggests that individuals respond more to the current price of medications and do not anticipate future prices as well as theory would suggest. Copyright © 2013 John Wiley & Sons, Ltd.

Suggested Citation

  • Cameron Kaplan & Yuting Zhang, 2014. "The January Effect: Medication Reinitiation Among Medicare Part D Beneficiaries," Health Economics, John Wiley & Sons, Ltd., vol. 23(11), pages 1287-1300, November.
  • Handle: RePEc:wly:hlthec:v:23:y:2014:i:11:p:1287-1300
    DOI: 10.1002/hec.2981
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    References listed on IDEAS

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    1. Jennifer M Polinski & William H Shrank & Haiden A Huskamp & Robert J Glynn & Joshua N Liberman & Sebastian Schneeweiss, 2011. "Changes in Drug Utilization during a Gap in Insurance Coverage: An Examination of the Medicare Part D Coverage Gap," PLOS Medicine, Public Library of Science, vol. 8(8), pages 1-12, August.
    2. Randall P. Ellis, 1986. "Rational Behavior in the Presence of Coverage Ceilings and Deductibles," RAND Journal of Economics, The RAND Corporation, vol. 17(2), pages 158-175, Summer.
    3. Aviva Aron-Dine & Liran Einav & Amy Finkelstein & Mark Cullen, 2012. "Moral hazard in health insurance: How important is forward looking behavior?," Discussion Papers 11-007, Stanford Institute for Economic Policy Research.
    4. Keeler, Emmett B & Newhouse, Joseph P & Phelps, C E, 1977. "Deductibles and the Demand for Medical Care Services: The Theory of a Consumer Facing a Variable Price Schedule under Uncertainty," Econometrica, Econometric Society, vol. 45(3), pages 641-655, April.
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    Cited by:

    1. Judith Liu & Yuting Zhang & Cameron M. Kaplan, 2023. "Effects of Medicare Part D coverage gap closure on utilization of branded and generic drugs," Health Economics, John Wiley & Sons, Ltd., vol. 32(3), pages 639-653, March.
    2. Katharina E. Blankart & Frank R. Lichtenberg, 2020. "Are patients more adherent to newer drugs?," Health Care Management Science, Springer, vol. 23(4), pages 605-618, December.
    3. Chan, Marc K. & Zeng, Guohua, 2018. "Unintended consequences of supply-side cost control? Evidence from China's new cooperative medical scheme," Journal of Health Economics, Elsevier, vol. 61(C), pages 27-46.
    4. Cameron M. Kaplan & Yuting Zhang, 2017. "Anticipatory Behavior in Response to Medicare Part D's Coverage Gap," Health Economics, John Wiley & Sons, Ltd., vol. 26(3), pages 338-351, March.

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