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Plan selection in Medicare Part D: Evidence from administrative data

  • Heiss, Florian
  • Leive, Adam
  • McFadden, Daniel
  • Winter, Joachim

We study the Medicare Part D prescription drug insurance program as a bellwether for designs of private, non-mandatory health insurance markets, focusing on the ability of consumers to evaluate and optimize their choices of plans. Our analysis of administrative data on medical claims in Medicare Part D suggests that fewer than 25% of individuals enroll in plans that are ex ante as good as the least cost plan specified by the Plan Finder tool made available to seniors by the Medicare administration, and that consumers on average have expected excess spending of about $300 per year, or about 15% of expected total out-of-pocket cost for drugs and Part D insurance. These numbers are hard to reconcile with decision costs alone; it appears that unless a sizeable fraction of consumers place large values on plan features other than cost, they are not optimizing effectively.

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Article provided by Elsevier in its journal Journal of Health Economics.

Volume (Year): 32 (2013)
Issue (Month): 6 ()
Pages: 1325-1344

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Handle: RePEc:eee:jhecon:v:32:y:2013:i:6:p:1325-1344
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505560

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  7. Mark V. Pauly & Yuhui Zeng, 2004. "Adverse Selection and the Challenges to Stand-Alone Prescription Drug Insurance," NBER Chapters, in: Frontiers in Health Policy Research, Volume 7, pages 55-74 National Bureau of Economic Research, Inc.
  8. Heiss, Florian & Leive, Adam & McFadden, Daniel & Winter, Joachim, 2012. "Plan selection in Medicare Part D: Evidence from administrative data," Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 65406, Verein für Socialpolitik / German Economic Association.
  9. 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.
  10. Keith Marzilli Ericson & Amanda Starc, 2012. "Heuristics and Heterogeneity in Health Insurance Exchanges: Evidence from the Massachusetts Connector," American Economic Review, American Economic Association, vol. 102(3), pages 493-97, May.
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  15. Benjamin R. Handel & Jonathan T. Kolstad, 2013. "Health Insurance for "Humans": Information Frictions, Plan Choice, and Consumer Welfare," NBER Working Papers 19373, National Bureau of Economic Research, Inc.
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