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Adverse Selection in Retiree Prescription Drug Plans

In: Frontiers in Health Policy Research, Volume 9

Listed author(s):
  • Dana P. Goldman
  • Geoffrey Joyce
  • Pinar Karaca-Mandic

We used claims data from a large U.S. employer that introduced changes in its medical and drug coverage offerings in 2002 for non-Medicare eligible retirees. In addition to the existing plans, the employer introduced two new plans in 2002 that were less generous both in terms of medical and drug coverage. Further, one of the new plans had an annual benefit limit of $2,500 on prescription drugs, similar to the doughnut hole in the standard Medicare Part D benefit. We examined beneficiaries switching behavior in response to the new choice set and estimated the independent effects of medical and drug benefits on plan selection. We found that beneficiaries in better health were more likely to switch to the new, less generous plans. While the generosity of the medical benefit played a more important role in choosing a plan, choices did not vary significantly by health status. In contrast, sicker individuals were more likely to enroll in plans with generous drug benefits. This suggests that drug coverage may be more susceptible to adverse selection than medical insurance.

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This chapter was published in:
  • David Cutler & Alan Garber, 2006. "Frontiers in Health Policy Research, Volume 9," NBER Books, National Bureau of Economic Research, Inc, number cutl06-1, June.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 9881.
    Handle: RePEc:nbr:nberch:9881
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