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Evolving Choice Inconsistencies in Choice of Prescription Drug Insurance

  • Jason Abaluck
  • Jonathan Gruber

We explore choice inconsistency over time within the Medicare Part D Prescription Drug Program. Using the full universe of Part D claims data, we revisit our earlier work on partial data to replicate our results showing large "foregone savings" among Part D enrollees. We also document that this foregone savings increases over time during the first four years of the Part D program. We then develop a rich dynamic structural framework that allows us to mathematically decompose the "foregone welfare" from inconsistent plan choices into components due to demand side factors, supply side factors, and changes in preferences over time. We find that the welfare cost of choice inconsistencies increases over time. Most importantly, we find that there is little improvement in the ability of consumers to choose plans over time; we identify and estimate little learning at either the individual or cohort level over the years of our analysis. Inertia does reduce welfare, but even in a world with no inertia we estimate that substantial welfare losses would remain. We conclude that the increased choice inconsistencies over time are driven by changes on the supply side that are not offset both because of inertia and because non-inertial consumers still make inconsistent choices.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19163.

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Date of creation: Jun 2013
Date of revision:
Handle: RePEc:nbr:nberwo:19163
Note: AG HC HE PE
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  1. Heiss, Florian & McFadden, Daniel L. & Winter, Joachim, 2006. "Who failed to enroll in Medicare Part D, and why? Early results," Munich Reprints in Economics 19427, University of Munich, Department of Economics.
  2. Heiss, Florian & Leive, Adam & McFadden, Daniel & Winter, Joachim, 2013. "Plan selection in Medicare Part D: Evidence from administrative data," Journal of Health Economics, Elsevier, vol. 32(6), pages 1325-1344.
  3. Xavier Gabaix & John C. Driscoll & David Laibson & Sumit Agarwal, 2008. "The Age of Reason: Financial Decisions Over the Lifecycle," 2008 Meeting Papers 322, Society for Economic Dynamics.
  4. Ketcham, Jonathan D. & Lucarelli, Claudio & Miravete, Eugenio J & Roebuck, M Christopher, 2011. "Sinking, Swimming, or Learning to Swim in Medicare Part D," CEPR Discussion Papers 8585, C.E.P.R. Discussion Papers.
  5. Jeffrey R. Kling & Sendhil Mullainathan & Eldar Shafir & Lee Vermeulen & Marian Wrobel, 2011. "Comparison Friction: Experimental Evidence from Medicare Drug Plans," NBER Working Papers 17410, National Bureau of Economic Research, Inc.
  6. Jeffrey R. Kling & Sendhil Mullainathan & Eldar Shafir & Lee C. Vermeulen & Marian V. Wrobel, 2012. "Comparison Friction Experimental Evidence from Medicare Drug Plans," Mathematica Policy Research Reports b5b408501b0147b89b7d124e8, Mathematica Policy Research.
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