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Evolving Choice Inconsistencies in Choice of Prescription Drug Insurance

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Listed:
  • Jason Abaluck
  • Jonathan Gruber

Abstract

We study choice over prescription insurance plans by the elderly using government administrative data to evaluate how these choices are made and evolve over time. We find that there is large "foregone savings" from not choosing the lowest cost plan that has grown over time. We develop a structural framework that allows us to exactly decompose the changes in "foregone welfare" from inconsistent choices into supply and demand side factors. We find that foregone welfare increases over time due primarily to supply-side factors such as premiums and out-of-pocket costs; we estimate little learning at either the individual or cohort level.

Suggested Citation

  • Jason Abaluck & Jonathan Gruber, 2013. "Evolving Choice Inconsistencies in Choice of Prescription Drug Insurance," NBER Working Papers 19163, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:19163
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    References listed on IDEAS

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    1. repec:mpr:mprres:7375 is not listed on IDEAS
    2. Sumit Agarwal & John C. Driscoll & Xavier Gabaix & David I. Laibson, 2007. "The age of reason: financial decisions over the lifecycle," Working Paper Series WP-07-05, Federal Reserve Bank of Chicago.
    3. Jason Abaluck & Jonathan Gruber, 2011. "Choice Inconsistencies among the Elderly: Evidence from Plan Choice in the Medicare Part D Program," American Economic Review, American Economic Association, vol. 101(4), pages 1180-1210, June.
    4. Jeffrey R. Kling & Sendhil Mullainathan & Eldar Shafir & Lee C. Vermeulen & Marian V. Wrobel, 2012. "Comparison Friction: Experimental Evidence from Medicare Drug Plans," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 127(1), pages 199-235.
    5. Jonathan D. Ketcham & Claudio Lucarelli & Eugenio J. Miravete & M. Christopher Roebuck, 2012. "Sinking, Swimming, or Learning to Swim in Medicare Part D," American Economic Review, American Economic Association, vol. 102(6), pages 2639-2673, October.
    6. Heiss, Florian & McFadden, Daniel L. & Winter, Joachim, 2006. "Who failed to enroll in Medicare Part D, and why? Early results," Munich Reprints in Economics 19427, University of Munich, Department of Economics.
    7. Heiss, Florian & Leive, Adam & McFadden, Daniel & Winter, Joachim, 2013. "Plan selection in Medicare Part D: Evidence from administrative data," Journal of Health Economics, Elsevier, vol. 32(6), pages 1325-1344.
    8. Benjamin R. Handel, 2011. "Adverse Selection and Switching Costs in Health Insurance Markets: When Nudging Hurts," NBER Working Papers 17459, National Bureau of Economic Research, Inc.
    9. Jason T. Abaluck & Jonathan Gruber, 2009. "Choice Inconsistencies Among the Elderly: Evidence from Plan Choice in the Medicare Part D Program," NBER Working Papers 14759, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. #HEJC papers for August 2013
      by academichealtheconomists in The Academic Health Economists' Blog on 2013-08-01 04:00:48

    Citations

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    Cited by:

    1. Kate Ho & Joseph Hogan & Fiona Scott Morton, 2017. "The impact of consumer inattention on insurer pricing in the Medicare Part D program," RAND Journal of Economics, RAND Corporation, vol. 48(4), pages 877-905, December.
    2. Maria Polyakova, 2016. "Regulation of Insurance with Adverse Selection and Switching Costs: Evidence from Medicare Part D," American Economic Journal: Applied Economics, American Economic Association, vol. 8(3), pages 165-195, July.
    3. Liran Einav & Amy Finkelstein & Maria Polyakova, 2018. "Private Provision of Social Insurance: Drug-Specific Price Elasticities and Cost Sharing in Medicare Part D," American Economic Journal: Economic Policy, American Economic Association, vol. 10(3), pages 122-153, August.
    4. Christopher Afendulis & Anna Sinaiko & Richard Frank, 2014. "Dominated Choices and Medicare Advantage Enrollment," NBER Working Papers 20181, National Bureau of Economic Research, Inc.
    5. Francesco Decarolis & Maria Polyakova & Stephen P. Ryan, 2020. "Subsidy Design in Privately Provided Social Insurance: Lessons from Medicare Part D," Journal of Political Economy, University of Chicago Press, vol. 128(5), pages 1712-1752.
    6. Naomi C. Sacks & James F. Burgess & Howard J. Cabral & Steven D. Pizer, 2017. "Myopic and Forward Looking Behavior in Branded Oral Anti‐Diabetic Medication Consumption: An Example from Medicare Part D," Health Economics, John Wiley & Sons, Ltd., vol. 26(6), pages 753-764, June.
    7. Leemore Dafny & Jonathan Gruber & Christopher Ody, 2015. "More Insurers Lower Premiums: Evidence from Initial Pricing in the Health Insurance Marketplaces," American Journal of Health Economics, MIT Press, vol. 1(1), pages 53-81, Winter.
    8. Jason Abaluck & Jonathan Gruber & Ashley Swanson, 2015. "Prescription Drug Use under Medicare Part D: A Linear Model of Nonlinear Budget Sets," NBER Working Papers 20976, National Bureau of Economic Research, Inc.
    9. Leemore Dafny & Jonathan Gruber & Christopher Ody, 2014. "More Insurers Lower Premiums: Evidence from Initial Pricing in the Health Insurance Marketplaces," NBER Working Papers 20140, National Bureau of Economic Research, Inc.
    10. Christina M. Dalton & Gautam Gowrisankaran & Robert Town, 2015. "Salience, Myopia, and Complex Dynamic Incentives: Evidence from Medicare Part D," NBER Working Papers 21104, National Bureau of Economic Research, Inc.
    11. Jonathan D. Ketcham & Nicolai V. Kuminoff & Christopher A. Powers, 2016. "Choice Inconsistencies among the Elderly: Evidence from Plan Choice in the Medicare Part D Program: Comment," American Economic Review, American Economic Association, vol. 106(12), pages 3932-3961, December.
    12. Jonathan D. Ketcham & Nicolai V. Kuminoff & Christopher A. Powers, 2015. "Which Models Can We Trust to Evaluate Consumer Decision Making? Comment on “Choice Inconsistencies among the Elderly”," NBER Working Papers 21387, National Bureau of Economic Research, Inc.
    13. Afendulis, Christopher C. & Sinaiko, Anna D. & Frank, Richard G., 2015. "Dominated choices and Medicare Advantage enrollment," Journal of Economic Behavior & Organization, Elsevier, vol. 119(C), pages 72-83.

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    More about this item

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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