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Rationing Medicine Through Bureaucracy: Authorization Restrictions in Medicare

Author

Listed:
  • Zarek C. Brot-Goldberg
  • Samantha Burn
  • Timothy Layton
  • Boris Vabson

Abstract

High administrative costs in U.S. health care have provoked concern among policymakers over potential waste, but many of these costs are generated by managed care policies that trade off bureaucratic costs against reductions in moral hazard. We study this trade-off for prior authorization restriction policies in Medicare Part D, where low-income beneficiaries are randomly assigned to default plans. Beneficiaries who face restrictions on a drug reduce their use of it by 26.8%. Approximately half of marginal beneficiaries are diverted to another related drug, while the other half are diverted to no drug. These policies generated net financial savings, reducing drug spending by $96 per beneficiary-year (3.6% of drug spending), while only generating approximately $10 in paperwork costs. Revealed preference approaches suggest that the cost savings likely exceed beneficiaries’ willingness to pay for foregone drugs.

Suggested Citation

  • Zarek C. Brot-Goldberg & Samantha Burn & Timothy Layton & Boris Vabson, 2023. "Rationing Medicine Through Bureaucracy: Authorization Restrictions in Medicare," NBER Working Papers 30878, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:30878
    Note: AG EH PE
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    Cited by:

    1. Anderson, David M. & Hoagland, Alex & Zhu, Ed, 2024. "Medical bill shock and imperfect moral hazard," Journal of Public Economics, Elsevier, vol. 236(C).
    2. Lee, Ajin & Vabson, Boris, 2024. "The value of improving insurance quality: Evidence from long-run Medicaid attrition," Journal of Health Economics, Elsevier, vol. 94(C).

    More about this item

    JEL classification:

    • H0 - Public Economics - - General
    • I1 - Health, Education, and Welfare - - Health
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private

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