Perverse Incentives in the Medicare Prescription Drug Benefit
AbstractWe analyze some of the perverse incentives that may arise under the current Medicare prescription drug benefit design. In particular, risk adjustment for a stand-alone prescription drug benefit creates perverse incentives for prescription drug plans' coverage decisions and/or pharmaceutical companies' pricing decisions. This problem is new in that it does not arise with risk adjustment for other types of health care coverage. For this and other reasons, Medicare's drug benefit requires especially close regulatory oversight, now and in the future. We also consider a relatively minor change in how the benefit is financed that could lead to significant changes in how it functions. In particular, if all plans were required to charge the same premium, there would be less diversity in quality but also less budgetary uncertainty and less upward pressure on drug prices.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12008.
Date of creation: Feb 2006
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Find related papers by JEL classification:
- I1 - Health, Education, and Welfare - - Health
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-02-26 (All new papers)
- NEP-HEA-2006-02-26 (Health Economics)
- NEP-IAS-2006-02-26 (Insurance Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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National Bureau of Economic Research, Inc.
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