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The Welfare Effects of Supply-Side Regulations in Medicare Part D

Author

Listed:
  • Francesco Decarolis
  • Maria Polyakova
  • Stephen P. Ryan

Abstract

The efficiency of publicly-subsidized, privately-provisioned social insurance programs depends on the interaction between insurer behavior and public subsidies. We study this interaction within Medicare Part D Prescription Drug Plan (PDP) markets. Using a structural model of supply and demand, we find: consumers purchase too few and too socially-costly PDP plans; insurers price near marginal cost; the primary driver of welfare is the opportunity cost of government spending on other Medicare programs; and the current subsidization policy achieves a level of total welfare close to that obtained under an optimal in-kind subsidy, but is far from the social planner's first-best solution.

Suggested Citation

  • Francesco Decarolis & Maria Polyakova & Stephen P. Ryan, 2015. "The Welfare Effects of Supply-Side Regulations in Medicare Part D," NBER Working Papers 21298, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:21298
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Daniel W. Sacks & Khoa Vu & Tsan-Yao Huang & Pinar Karaca-Mandic, 2017. "The Effect of the Risk Corridors Program on Marketplace Premiums and Participation," NBER Working Papers 24129, National Bureau of Economic Research, Inc.
    2. Kate Ho & Joseph Hogan & Fiona Scott Morton, 2017. "The impact of consumer inattention on insurer pricing in the Medicare Part D program," RAND Journal of Economics, RAND Corporation, vol. 48(4), pages 877-905, December.
    3. Amanda Starc & Robert J. Town, 2015. "Externalities and Benefit Design in Health Insurance," NBER Working Papers 21783, National Bureau of Economic Research, Inc.
    4. Maria Polyakova, 2016. "Regulation of Insurance with Adverse Selection and Switching Costs: Evidence from Medicare Part D," American Economic Journal: Applied Economics, American Economic Association, vol. 8(3), pages 165-195, July.
    5. Liran Einav & Amy Finkelstein & Maria Polyakova, 2016. "Private Provision of Social Insurance: Drug-specific Price Elasticities and Cost Sharing in Medicare Part D," NBER Working Papers 22277, National Bureau of Economic Research, Inc.
    6. repec:eee:hapoch:v1_237 is not listed on IDEAS
    7. Bernard Salanié, 2017. "Equilibrium in Insurance Markets: An Empiricist’s View," The Geneva Papers on Risk and Insurance Theory, Springer;International Association for the Study of Insurance Economics (The Geneva Association), vol. 42(1), pages 1-14, March.
    8. Sonia Jaffe & Mark Shepard, 2017. "Price-Linked Subsidies and Health Insurance Markups," Working Papers 2017-084, Human Capital and Economic Opportunity Working Group.
    9. Sonia P. Jaffe & Mark Shepard, 2017. "Price-Linked Subsidies and Imperfect Competition in Health Insurance," NBER Working Papers 23104, National Bureau of Economic Research, Inc.
    10. Jonathan D. Ketcham & Nicolai V. Kuminoff & Christopher A. Powers, 2016. "Estimating the Heterogeneous Welfare Effects of Choice Architecture: An Application to the Medicare Prescription Drug Insurance Market," NBER Working Papers 22732, National Bureau of Economic Research, Inc.
    11. repec:eee:ecolet:v:159:y:2017:i:c:p:69-73 is not listed on IDEAS
    12. Florian Heiss & Daniel McFadden & Joachim Winter & Amelie Wuppermann & Bo Zhou, 2016. "Inattention and Switching Costs as Sources of Inertia in Medicare Part D," NBER Working Papers 22765, National Bureau of Economic Research, Inc.
    13. Aizawa, Naoki & Kim, You Suk, 2015. "Advertising and Risk Selection in Health Insurance Markets," Finance and Economics Discussion Series 2015-101, Board of Governors of the Federal Reserve System (U.S.).
    14. Woodard, Joshua, 2016. "Estimation of Insurance Deductible Demand under Endogenous Premium Rates," 2016 Annual Meeting, July 31-August 2, 2016, Boston, Massachusetts 236151, Agricultural and Applied Economics Association.
    15. Fang, H., 2016. "Insurance Markets for the Elderly," Handbook of the Economics of Population Aging, Elsevier.

    More about this item

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H4 - Public Economics - - Publicly Provided Goods
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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