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Pricing and Incentives in Publicly Subsidized Health Care Markets: the Case of Medicare Part D

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  • Francesco Decarolis

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    (Department of Economics, University of Wisconsin-Madison)

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    Abstract

    In Medicare Part D, low income individuals receive subsidies to enroll into insurance plans. This paper studies how premiums are distorted by the combined effects of this subsidy and the default assignment of low income enrollees into plans. Removing this distortion could reduce the cost of the program without worsening consumers' welfare. Using data from the the first five years of the program, an econometric model is used to estimate consumers demand for plans and to compute what premiums would be without the subsidy distortion. Preliminary estimates suggest that the reduction in premiums of affected plans would be substantial.

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    File URL: http://economics.sas.upenn.edu/sites/economics.sas.upenn.edu/files/12-026_0.pdf
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    Bibliographic Info

    Paper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 12-026.

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    Length: 54 pages
    Date of creation: 30 Jun 2012
    Date of revision:
    Handle: RePEc:pen:papers:12-026

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    Keywords: Medicare; prescription drugs; health insurance demand; auctions;

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    1. Florian Heiss & Daniel McFadden & Joachim Winter, 2007. "Mind the Gap! Consumer Perceptions and Choices of Medicare Part D Prescription Drug Plans," NBER Working Papers 13627, National Bureau of Economic Research, Inc.
    2. 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.
    3. Heiss, Florian & Leive, Adam & McFadden, Daniel & Winter, Joachim, 2012. "Plan Selection in Medicare Part D: Evidence from administrative Data," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 384, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    4. M. Bundorf & Jonathan Levin & Neale Mahoney, 2008. "Pricing and Welfare in Health Plan Choice," Discussion Papers, Stanford Institute for Economic Policy Research 07-047, Stanford Institute for Economic Policy Research.
    5. Claudio Lucarelli & Jeffrey Prince & Kosali Simon, 2008. "The Welfare Impact of Reducing Choice in Medicare Part D: A Comparison of Two Regulation Strategies," NBER Working Papers 14296, National Bureau of Economic Research, Inc.
    6. Francesco Decarolis, 2009. "When the highest bidder loses the auction: theory and evidence from public procurement," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 717, Bank of Italy, Economic Research and International Relations Area.
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