UC Davis

The ACA introduced a regulation in section 1302(c)(1) that requires all private insurance plans to provide customers with a maximum annual out-of-pocket limit. Using a difference-in-differences estimation with continuous treatment and data from the Medical Expenditure Panel Survey and IQVIA, I estimate that the 2015 and 2016 enforcement of this regulation increased the proportion of branded pharmaceutical claims dispensed with no out-of-pocket cost, while no effect was detected for the more limited enforcement in 2014. From 2012 to 2018, the proportion of branded pharmaceutical prescriptions paid with no out-of-pocket costs increased from 8.5\% to 20.2\% for privately-insured consumers (including employer-provided, health-exchange, and individual plans). This rises to 27.4\% in December 2018 as consumers increasingly reach the limit throughout the calendar year. This increase is larger than would have been expected based on the mean pre-ACA exposure estimates which may be evidence of strategic behavior or other policies amplifying the effect of this regulation. I also examine whether exposure to section 1302(c)(1) affected measures of medication adherence and find that it increased medication possession ratio in 2015.

Due to the annual plan-year deductible and out-of-pocket limit reset, there exists a ex-post inequity based on when an adverse medical event occurs for privately-insured consumers in the United States. I use a regression discontinuity design to examine this behavior. For some consumers, the effects are large: for patients who visit the emergency room (ER) with a myocardial infarction, the average coinsurance rates for pharmaceuticals in the following year decreases by 5.4 p.p (21\% relative decrease) if the ER visit is in January relative to those who visit in December. Both pricing transitions out of the deductible phase and past the out-of-pocket limit contribute substantially to this differential. These decreases in spot prices do not appear to increase the number of circulatory-system related prescriptions filled, but cause increases in other prescription spending, particularly branded products, providing evidence that myocardial infarction patients rationally prioritize their healthcare spending when faced with a health crisis. Based on these analyses, the price elasticity of demand for pharmaceutical products for myocardial infarction patients is estimated to be -0.23.

I also examine how patients respond to reaching their out-of-pocket limit. Using a fixed effects regression, I find that once patients reach their out-of-pocket limit, their branded drug consumption increases by 12\% and generic consumption grows by 7\% in the last four weeks of the calendar year relative to their behavior in years when they do not reach their out-of-pocket limit. Patients residing in the lowest income quartile geographic areas benefit the most, with their December drug utilization increasing four times as much as those in the highest income quartile areas.