A Primer on the Economics of Prescription Pharmaceutical Pricing in Health Insurance Markets
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Ernst R. Berndt
Abstract
The pricing of medical products and services in the U.S. is notoriously complex. In health care, supply prices (those received by the manufacturer) are distinct from demand prices (those paid by the patient) due to health insurance. The insurer, in designing the benefit, decides what prices patients pay out-of-pocket for drugs and other products. In this primer we characterize cost and supply conditions in markets for generic and branded drugs, and apply basic tools of microeconomics to describe how an insurer, acting on behalf of its enrollees, would set demand prices for drugs. Importantly, we show how the market structure on the supply side, characterized alternatively by monopoly (unique brands), Bertrand differentiated product markets (therapeutic competition) and competition (generics), influences the insurer’s choices about demand prices. This perspective sheds light on the choice of coinsurance versus copayments, the structure of tiered formularies, and developments in the retail market.
©2012 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
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- The Effects of Consumer-Directed Health Plans on Episodes of Health Care
- A Primer on the Economics of Prescription Pharmaceutical Pricing in Health Insurance Markets
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- How Do Consumer-Directed Health Plans Affect Vulnerable Populations?
- How Do Employers React to a Pay-or-Play Mandate? Early Evidence from San Francisco
- Determinants of Tobacco Control Funding: Evidence from U.S. States
- Toxic Choices: The Theory and Impact of Smoking Bans
- Pound Wise and Penny Foolish? Weight Loss and The Dynamics of Health Care Spending
- Regional Variation in Medication Adherence
- Erratum
- How Do Employers React to a Pay-or-Play Mandate? Early Evidence from San Francisco
Articles in the same Issue
- Article
- The Effects of Consumer-Directed Health Plans on Episodes of Health Care
- A Primer on the Economics of Prescription Pharmaceutical Pricing in Health Insurance Markets
- The Impact of Household Investments on Early Child Neurodevelopment and on Racial and Socioeconomic Developmental Gaps: Evidence from South America
- Should We Put a Thin Subsidy on the Policy Table in the Fight against Obesity?
- Does Patient Use of Medical Information Affect Physician Practice Incentives to Provide Care?
- How Do Consumer-Directed Health Plans Affect Vulnerable Populations?
- How Do Employers React to a Pay-or-Play Mandate? Early Evidence from San Francisco
- Determinants of Tobacco Control Funding: Evidence from U.S. States
- Toxic Choices: The Theory and Impact of Smoking Bans
- Pound Wise and Penny Foolish? Weight Loss and The Dynamics of Health Care Spending
- Regional Variation in Medication Adherence
- Erratum
- How Do Employers React to a Pay-or-Play Mandate? Early Evidence from San Francisco
