Search Costs and Medicare Plan Choice
AbstractThere 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.
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Bibliographic InfoPaper provided by Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington in its series Caepr Working Papers with number 2008-004.
Length: 38 pages
Date of creation: Apr 2008
Date of revision:
Search; Medicare Health Plan Choice; Discrete Choice Models; Bayesian Methods;
Other versions of this item:
- C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
- C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- M31 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising - - - Marketing
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-04-12 (All new papers)
- NEP-DCM-2008-04-12 (Discrete Choice Models)
- NEP-HEA-2008-04-12 (Health Economics)
- NEP-IAS-2008-04-12 (Insurance Economics)
- NEP-LAB-2008-04-12 (Labour Economics)
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