Public drug insurance, moral hazard and children's use of mental health medication: Latent mental health risk-specific responses to lower out-of-pocket treatment costs

Studies have shown that reducing out-of-pocket costs can lead to higher medication initiation rates in childhood. Whether the cost of such initiatives is inflated by moral hazard issues remains a question of concern. This paper looks to the implementation of a public drug insurance program in Quebec, Canada, to investigate potential low-benefit consumption in children. Using a nationally representative longitudinal sample, we harness machine learning techniques to predict a child's risk of developing a mental health disorder. Using difference-in-differences analyses, we then assess the impact of the drug program on children's mental health medication uptake across the distribution of predicted mental health risk. Beyond showing that eliminating out-of-pocket costs led to a 3 percentage point increase in mental health drug uptake, we show that demand responses are concentrated in the top two deciles of risk for developing mental health disorders. These higher-risk children increase take-up of mental health drugs by 7-8 percentage points. We find even stronger effects for stimulants (8-11 percentage point increases among the highest risk children). Our results suggest that reductions in out-of-pocket costs could achieve better uptake of mental health medications, without inducing substantial low-benefit care among lower-risk children.