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Medicare Part D: Are Insurers Gaming the Low Income Subsidy Design?

Listed author(s):
  • Francesco Decarolis

This paper shows how in Medicare Part D insurers' gaming of the subsidy paid to low-income enrollees distorts premiums and raises the program cost. Using plan-level data from the first five years of the program, I find multiple instances of pricing strategy distortions for the largest insurers. Instrumental variable estimates indicate that the changes in a concentration index measuring the manipulability of the subsidy can explain a large share of the premium growth observed between 2006 and 2011. Removing this distortion could reduce the cost of the program without worsening consumer welfare. (JEL G22, H51, I13, I18)

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 105 (2015)
Issue (Month): 4 (April)
Pages: 1547-1580

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Handle: RePEc:aea:aecrev:v:105:y:2015:i:4:p:1547-80
Note: DOI: 10.1257/aer.20130903
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