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Search costs and Medicare plan choice

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Author Info

  • Ian M. McCarthy

    (FTI Consulting, Dallas, TX, USA)

  • Rusty Tchernis

    (Department of Economics, Andrew Young School of Policy Studies, Georgia State University, Atlanta, GA, USA)

Abstract

There is increasing evidence suggesting that Medicare beneficiaries do not make fully informed decisions when choosing among alternative Medicare health plans. To the extent that deciphering the intricacies of alternative plans consumes time and money; the Medicare health plan market is one in which search costs may play an important role. To account for this, we split beneficiaries into two groups - those who are informed and those who are uninformed. If uninformed, beneficiaries only use a subset of covariates to compute their maximum utilities, and if informed, they use the full set of variables considered. In a Bayesian framework with Markov Chain Monte Carlo (MCMC) methods, we estimate search cost coefficients based on the minimum and maximum statistics of the search cost distribution, incorporating both horizontal differentiation and information heterogeneities across eligibles. Our results suggest that, conditional on being uninformed, older, higher income beneficiaries with lower self-reported health status are more likely to utilize easier access to information. Copyright © 2009 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/hec.1539
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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Health Economics.

Volume (Year): 19 (2010)
Issue (Month): 10 ()
Pages: 1142-1165

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Handle: RePEc:wly:hlthec:v:19:y:2010:i:10:p:1142-1165

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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/5749

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References

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  1. Susan Athey & Guido Imbens, 2006. "Discrete Choice Models with Multiple Unobserved Choice Characteristics," Levine's Bibliography 122247000000001040, UCLA Department of Economics.
  2. Matthijs R Wildenbeest, 2009. "An Empirical Model of Search with Vertically Differentiated Products," Working Papers 2009-01, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  3. Alan T. Sorensen, 2001. "An Empirical Model of Heterogeneous Consumer Search for Retail Prescription Drugs," NBER Working Papers 8548, National Bureau of Economic Research, Inc.
  4. Lewis, Matt, 2004. "Asymmetric Price Adjustment and Consumer Search: An Examination of the Retail Gasoline Market," Competition Policy Center, Working Paper Series qt9pv2d9fn, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
  5. Ali Hortacsu & Chad Syverson, 2003. "Product Differentiation, Search Costs, and Competition in the Mutual Fund Industry: A Case Study of the S&P 500 Index Funds," NBER Working Papers 9728, National Bureau of Economic Research, Inc.
  6. Carlson, John A & McAfee, R Preston, 1983. "Discrete Equilibrium Price Dispersion," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 480-93, June.
  7. Stahl, Dale O, II, 1989. "Oligopolistic Pricing with Sequential Consumer Search," American Economic Review, American Economic Association, vol. 79(4), pages 700-712, September.
  8. Rob, Rafael, 1985. "Equilibrium Price Distributions," Review of Economic Studies, Wiley Blackwell, vol. 52(3), pages 487-504, July.
  9. Peter E. Rossi & Robert E. McCulloch & Greg M. Allenby, 1996. "The Value of Purchase History Data in Target Marketing," Marketing Science, INFORMS, vol. 15(4), pages 321-340.
  10. Richard G. Frank, 2004. "Behavioral Economics and Health Economics," NBER Working Papers 10881, National Bureau of Economic Research, Inc.
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Cited by:
  1. Dormont, Brigitte & Geoffard, Pierre-Yves & Lamiraud, Karine, 2013. "Assurance maladie en Suisse : les assurances supplémentaires nuisent-elles à la concurrence sur l'assurance de base ?," Economics Papers from University Paris Dauphine 123456789/11294, Paris Dauphine University.
  2. Naoru Koizumi & Aileen Rothbard & Tony Smith & Jeremy Mayer, 2011. "Communities of color? Client-to-client racial concordance in the selection of mental health programs for Caucasians and African Americans," Health Care Management Science, Springer, vol. 14(4), pages 314-323, November.

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