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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.

Suggested Citation

  • Ian M. McCarthy & Rusty Tchernis, 2010. "Search costs and Medicare plan choice," Health Economics, John Wiley & Sons, Ltd., vol. 19(10), pages 1142-1165.
  • Handle: RePEc:wly:hlthec:v:19:y:2010:i:10:p:1142-1165 DOI: 10.1002/hec.1539

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    References listed on IDEAS

    1. Matthijs R. Wildenbeest, 2011. "An empirical model of search with vertically differentiated products," RAND Journal of Economics, RAND Corporation, vol. 42(4), pages 729-757, December.
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    1. repec:dau:papers:123456789/11294 is not listed on IDEAS
    2. Brigitte Dormont & Pierre-Yves Geoffard & Karine Lamiraud, 2012. "Assurance maladie en Suisse : les assurances supplémentaires nuisent-elles à la concurrence sur l'assurance de base ?," Économie et Statistique, Programme National Persée, vol. 455(1), pages 71-87.
    3. Naoru Koizumi & Aileen Rothbard & Tony Smith & Jeremy Mayer, 2011. "Communities of color? Client-to-client racial concordance in the selection of mental health programs for Caucasians and African Americans," Health Care Management Science, Springer, vol. 14(4), pages 314-323, November.

    More about this item

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing


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