OBJECTIVES: The purpose of this analysis was to explore – from a theoretical welfare economics perspective – how whether drugs are substitutes or complements affects the design of optimal coinsurance. METHODS: A theoretical economics model of a duopoly market for two medicines was constructed.  In the model, there are consumers who first purchase insurance and then consume drugs if they become sick.  Drug producers set the price of the drugs in the model.  The results from the model are then used to inform how benefits should be designed differently whether drugs are complements or substitutes.  Specific real-world examples are interpreted in light of these predictions, and special attention is given to the implications for value-based insurance design. RESULTS:   The results from the model show that drugs that are complements should have a lower coinsurance than drugs that are substitutes.  The model also suggests that when drugs are substitutes, consumers choose levels of coinsurance that are too low (i.e. consumer is insured too much).  This may or may not be the case for complements.  From society’s perspective (including drug makers’ profits), consumers choose levels of coinsurance that are too high (consumer is insured too little) when drugs are complements.  This may or may not be the case for substitutes. CONCLUSIONS: The results from the model can be used to inform the design of pharmaceutical benefits to make the consumer as well off as possible.  When drugs are complements, a lower burden of payment should be implemented for the consumer.  Examples of this would be HIV/AIDS drugs, malaria drugs or bone loss prevention (Calcium/Vitamin D).  When drugs are substitutes, a higher burden of payment should be implemented.  Examples would include statins, for example, when one treatment is chosen from many options.  Value-based insurance design needs to consider this complementarity in addition to the potential for under-use.