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Plan selection in Medicare Part D: Evidence from administrative data

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  • Heiss, Florian
  • Leive, Adam
  • McFadden, Daniel
  • Winter, Joachim

Abstract

We study the Medicare Part D prescription drug insurance program as a bellwether for designs of private, non-mandatory health insurance markets, focusing on the ability of consumers to evaluate and optimize their choices of plans. Our analysis of administrative data on medical claims in Medicare Part D suggests that fewer than 25% of individuals enroll in plans that are ex ante as good as the least cost plan specified by the Plan Finder tool made available to seniors by the Medicare administration, and that consumers on average have expected excess spending of about $300 per year, or about 15% of expected total out-of-pocket cost for drugs and Part D insurance. These numbers are hard to reconcile with decision costs alone; it appears that unless a sizeable fraction of consumers place large values on plan features other than cost, they are not optimizing effectively.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Health Economics.

Volume (Year): 32 (2013)
Issue (Month): 6 ()
Pages: 1325-1344

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Handle: RePEc:eee:jhecon:v:32:y:2013:i:6:p:1325-1344

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Web page: http://www.elsevier.com/locate/inca/505560

Related research

Keywords: Medicare; Prescription drugs; Health insurance demand; Administrative data; Insurance claims data;

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References

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  1. Sudipta Sarangi & Tibor Besedes & Cary Deck & Mikhael Shor, . "Decision-making Strategies and Performance among Seniors," Departmental Working Papers 2011-08, Department of Economics, Louisiana State University.
  2. Claudio Lucarelli & Jeffrey Prince & Kosali Simon, 2012. "The Welfare Impact Of Reducing Choice In Medicare Part D: A Comparison Of Two Regulation Strategies," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(4), pages 1155-1177, November.
  3. Jeffrey R. Kling & Sendhil Mullainathan & Eldar Shafir & Lee C. Vermeulen & Marian V. Wrobel, 2012. "Comparison Friction: Experimental Evidence from Medicare Drug Plans," The Quarterly Journal of Economics, Oxford University Press, vol. 127(1), pages 199-235.
  4. Sinaiko, Anna D. & Hirth, Richard A., 2011. "Consumers, health insurance and dominated choices," Journal of Health Economics, Elsevier, vol. 30(2), pages 450-457, March.
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  6. Sudipta Sarangi & Tibor Besedes & Cary Deck & Mikhael Shor, . "Age Effects and Heuristics in Decision Making," Departmental Working Papers 2009-03, Department of Economics, Louisiana State University.
  7. Helen Levy & David Weir, 2009. "Take-Up of Medicare Part D: Results from the Health and Retirement Study," NBER Working Papers 14692, National Bureau of Economic Research, Inc.
  8. David M. Cutler & Sarah J. Reber, 1998. "Paying For Health Insurance: The Trade-Off Between Competition And Adverse Selection," The Quarterly Journal of Economics, MIT Press, vol. 113(2), pages 433-466, May.
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  10. Gary V. Engelhardt & Jonathan Gruber, 2011. "Medicare Part D and the Financial Protection of the Elderly," American Economic Journal: Economic Policy, American Economic Association, vol. 3(4), pages 77-102, November.
  11. Keith M. Marzilli Ericson, 2012. "Consumer Inertia and Firm Pricing in the Medicare Part D Prescription Drug Insurance Exchange," NBER Working Papers 18359, National Bureau of Economic Research, Inc.
  12. Keith Marzilli Ericson & Amanda Starc, 2012. "Heuristics and Heterogeneity in Health Insurance Exchanges: Evidence from the Massachusetts Connector," American Economic Review, American Economic Association, vol. 102(3), pages 493-97, May.
  13. Jonathan D. Ketcham & Claudio Lucarelli & Eugenio J. Miravete & M. Christopher Roebuck, 2012. "Sinking, Swimming, or Learning to Swim in Medicare Part D," American Economic Review, American Economic Association, vol. 102(6), pages 2639-73, October.
  14. Sumit Agarwal & John C. Driscoll & Xavier Gabaix & David Laibson, 2009. "The Age of Reason: Financial Decisions over the Life Cycle and Implications for Regulation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 40(2 (Fall)), pages 51-117.
  15. Mark V. Pauly & Yuhui Zeng, 2004. "Adverse Selection and the Challenges to Stand-Alone Prescription Drug Insurance," NBER Chapters, in: Frontiers in Health Policy Research, Volume 7, pages 55-74 National Bureau of Economic Research, Inc.
  16. Jason Abaluck & Jonathan Gruber, 2011. "Choice Inconsistencies among the Elderly: Evidence from Plan Choice in the Medicare Part D Program," American Economic Review, American Economic Association, vol. 101(4), pages 1180-1210, June.
  17. Mark Duggan & Patrick Healy & Fiona Scott Morton, 2008. "Providing Prescription Drug Coverage to the Elderly: America's Experiment with Medicare Part D," Journal of Economic Perspectives, American Economic Association, vol. 22(4), pages 69-92, Fall.
  18. Heiss, Florian & McFadden, Daniel L. & Winter, Joachim, 2006. "Who failed to enroll in Medicare Part D, and why? Early results," Munich Reprints in Economics 19427, University of Munich, Department of Economics.
  19. Laibson, David I. & Agarwal, Sumit & Driscoll, John C. & Gabaix, Xavier, 2009. "The Age of Reason: Financial Decisions over the Life-Cycle with Implications for Regulation," Scholarly Articles 4554335, Harvard University Department of Economics.
  20. Florian Heiss & Daniel McFadden & Joachim Winter, 2009. "Regulation of private health insurance markets: Lessons from enrollment, plan type choice, and adverse selection in Medicare Part D," NBER Working Papers 15392, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Vetter, Stefan & Heiss, Florian & McFadden, Daniel L. & Winter, Joachim, 2013. "Risk attitudes and Medicare Part D enrollment decisions," Munich Reprints in Economics 19703, University of Munich, Department of Economics.
  2. Francesco Decarolis, 2012. "Pricing and Incentives in Publicly Subsidized Health Care Markets: the Case of Medicare Part D," PIER Working Paper Archive 12-026, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  3. Kesternich, Iris & Heiss, Florian & McFadden, Daniel & Winter, Joachim, 2012. "Suit the action to the word, the word to the action: Hypothetical choices and real decisions in Medicare Part D," Discussion Papers in Economics 14124, University of Munich, Department of Economics.
  4. Jason Abaluck & Jonathan Gruber, 2013. "Evolving Choice Inconsistencies in Choice of Prescription Drug Insurance," NBER Working Papers 19163, National Bureau of Economic Research, Inc.
  5. Fels, Markus, 2013. "Limited Attention and the Demand for Health Insurance," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 80485, Verein für Socialpolitik / German Economic Association.
  6. Martin Gaynor & Kate Ho & Robert Town, 2014. "The Industrial Organization of Health Care Markets," NBER Working Papers 19800, National Bureau of Economic Research, Inc.

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