Prescription drug demand for psychotropics: The impact of out-of-pocket payment

This thesis examines the effect of out-of-pocket payment on the purchase of psychotropic drugs for treating depressive disorders. Using the Medical Expenditure Panel Survey (MEPS) data from 1996 to 2000, the numbers of psychotropic purchases among patients with depressive disorder in a time period are modeled using truncated count data models, with covariates that include the out-of-pocket payment and other measurements related to demographics, socioeconomic characteristics, and health status. Potential endogeneity of the out-of-pocket payment variable is handled with an instrumental variable approach. We find an overall out-of-pocket price elasticity of −0.225, suggesting that the demand for psychotropics is responsive to changes in out-of-pocket price, but the degree of responsiveness varies dramatically between depressed elderly and depressed non-elderly. Some degree of moral hazard is likely to be present among the young and the middle age, but not among the elderly, where demand is quite inelastic (−0.046). We also find evidence of plan manipulation, whereby insurers structure insurance plans to attract healthy subjects and/or repel unhealthy ones. In addition, we find evidence of undertreatment and poor adherence to treatment among depressive disorder patients.