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Mind the Gap! Consumer Perceptions and Choices of Medicare Part D Prescription Drug Plans

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  • Florian Heiss
  • Daniel McFadden
  • Joachim Winter

Abstract

Medicare Part D provides prescription drug coverage through Medicare approved plans offered by private insurance companies and HMOs. In this paper, we study the role of current prescription drug use and health risks, related expectations, and subjective factors in the demand for prescription drug insurance. To characterize rational behavior in the complex Part D environment, we develop an intertemporal optimization model of enrollment decisions. We generally find that seniors' choices respond to the incentives provided by their own health status and the market environment as predicted by the optimization model. The proportion of individuals who do not attain the optimal choice is small, but the margin for error is also small since enrollment is transparently optimal for most eligible seniors. Further, there is also evidence that seniors over-react to some salient features of the choice situation, do not take full account of the future benefit and cost consequences of their decisions, or the expected net benefits and risk properties of alternative plans.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13627.

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Date of creation: Nov 2007
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Publication status: published as Mind the Gap! Consumer Perceptions and Choices of Medicare Part D Prescription Drug Plans , Florian Heiss, Daniel McFadden, Joachim Winter. in Research Findings in the Economics of Aging , Wise. 2010
Handle: RePEc:nbr:nberwo:13627

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  1. Jaap H. Abbring & James J. Heckman & Pierre-André Chiappori & Jean Pinquet, 2003. "Adverse Selection and Moral Hazard In Insurance: Can Dynamic Data Help to Distinguish?," Journal of the European Economic Association, MIT Press, MIT Press, vol. 1(2-3), pages 512-521, 04/05.
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  7. Florian Heiss & Axel Börsch-Supan & Michael Hurd & David A. Wise, 2009. "Pathways to Disability: Predicting Health Trajectories," NBER Chapters, in: Health at Older Ages: The Causes and Consequences of Declining Disability among the Elderly, pages 105-150 National Bureau of Economic Research, Inc.
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