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Strategic Tier Design in Health Insurance: The Case of Medicare Part D

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  • Iaria, Alessandro
  • Bignon, Léa
  • Lasio, Laura

Abstract

We study the role of tier design in Medicare Part D. In the period 2013-2017, plans expanded the number of tiers in their formularies from three/four to five and systematically shifted generics to higher tiers subject to higher cost sharing. The systematic tier upgrading caused significant increases in the out-of-pocket costs, up to six times for some generics. This resulted in additional average per-enrollee spending on generics of $76 in 2017, totalling $1.5 billion for the Part D population, and increased mortality by 5.4% due to reduced utilization of generics with documented mortality benefits.

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  • Iaria, Alessandro & Bignon, Léa & Lasio, Laura, 2023. "Strategic Tier Design in Health Insurance: The Case of Medicare Part D," CEPR Discussion Papers 17937, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:17937
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