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Part D Formulary and Benefit Design as a Risk-Steering Mechanism

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  • Dana P. Goldman
  • Geoffrey F. Joyce
  • William B. Vogt

Abstract

Medicare Part D relies upon drug plan competition. Plans have enormous scope to design benefits and to set premiums, but they may not charge differential premiums based on risk. We use the formulary and benefit design of all Medicare prescription drug plans and pharmacy claims data to construct a simulation model of out-of-pocket drug spending. We use this simulation model to examine individual incentives in Medicare Part D for adverse selection. We find that high drug users have much stronger incentives to enroll in generous plans than do low users, thus there is significant scope for adverse selection.

Suggested Citation

  • Dana P. Goldman & Geoffrey F. Joyce & William B. Vogt, 2011. "Part D Formulary and Benefit Design as a Risk-Steering Mechanism," American Economic Review, American Economic Association, vol. 101(3), pages 382-386, May.
  • Handle: RePEc:aea:aecrev:v:101:y:2011:i:3:p:382-86
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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.3.382
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    References listed on IDEAS

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    1. Florian Heiss & Daniel McFadden & Joachim Winter, 2009. "Regulation of private health insurance markets: Lessons from enrollment, plan type choice, and adverse selection in Medicare Part D," NBER Working Papers 15392, National Bureau of Economic Research, Inc.
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    Cited by:

    1. 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, Oxford University Press, vol. 127(1), pages 199-235.

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