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Search costs and Medicare plan choice

  • Ian M. McCarthy

    (FTI Consulting, Dallas, TX, USA)

  • Rusty Tchernis

    (Department of Economics, Andrew Young School of Policy Studies, Georgia State University, Atlanta, GA, USA)

There is increasing evidence suggesting that Medicare beneficiaries do not make fully informed decisions when choosing among alternative Medicare health plans. To the extent that deciphering the intricacies of alternative plans consumes time and money; the Medicare health plan market is one in which search costs may play an important role. To account for this, we split beneficiaries into two groups - those who are informed and those who are uninformed. If uninformed, beneficiaries only use a subset of covariates to compute their maximum utilities, and if informed, they use the full set of variables considered. In a Bayesian framework with Markov Chain Monte Carlo (MCMC) methods, we estimate search cost coefficients based on the minimum and maximum statistics of the search cost distribution, incorporating both horizontal differentiation and information heterogeneities across eligibles. Our results suggest that, conditional on being uninformed, older, higher income beneficiaries with lower self-reported health status are more likely to utilize easier access to information. Copyright © 2009 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/hec.1539
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Article provided by John Wiley & Sons, Ltd. in its journal Health Economics.

Volume (Year): 19 (2010)
Issue (Month): 10 ()
Pages: 1142-1165

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Handle: RePEc:wly:hlthec:v:19:y:2010:i:10:p:1142-1165
Contact details of provider: Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/5749

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  8. Matthew S. Lewis, 2011. "Asymmetric Price Adjustment and Consumer Search: An Examination of the Retail Gasoline Market," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 20(2), pages 409-449, 06.
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