Public drug insurance, moral hazard and children's use of mental health medication: Latent mental health risk‐specific responses to lower out‐of‐pocket treatment costs

Studies have shown that reducing out‐of‐pocket costs can lead to higher medication initiation rates in childhood. Whether the cost of such initiatives is inflated by moral hazard issues remains a question of concern. This paper looks to the implementation of a public drug insurance program in Québec, Canada, to investigate potential low‐benefit consumption in children. Using a nationally representative longitudinal sample, we harness machine learning techniques to predict a child's risk of developing a mental health disorder. Using difference‐in‐differences analyses, we then assess the impact of the drug program on children's mental health medication uptake across the distribution of predicted mental health risk. Beyond showing that eliminating out‐of‐pocket costs led to a 3 percentage point increase in mental health drug uptake, we show that demand responses are concentrated in the top two deciles of risk for developing mental health disorders. These higher‐risk children increase take‐up of mental health drugs by 7–8 percentage points. We find even stronger effects for stimulants (8–11 percentage point increases among the highest risk children). Our results suggest that reductions in out‐of‐pocket costs could achieve better uptake of mental health medications, without inducing substantial low‐benefit care among lower‐risk children.