Cover more for less: Targeted drug coverage, chronic disease management, and medical spending

Abstract

A key challenge in expanding public health insurance programs is how to deliver these programs cost-effectively with limited budget. This paper studies a value-based insurance design that introduced prescription drug coverage for two chronic diseases—hypertension and diabetes. This targeted drug coverage scheme increased the use of primary care and sharply reduced hospitalizations, leading to substantial net savings in total medical expenditure. Three operating channels were in play. First, a hospitalization offset was achieved by stimulating regular use of primary care and improving disease management. Second, the offset occurred more notably for nontargeted chronic diseases, suggesting a strong positive cross-disease spillover effect. Third, learning contributed to more efficient management of both targeted and nontargeted diseases. Our findings highlight a viable value-based insurance design, especially for developing countries with limited funding.