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

Listed author(s):
  • Francesco Decarolis
  • Maria Polyakova
  • Stephen P. Ryan

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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 21298.

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Date of creation: Jun 2015
Handle: RePEc:nbr:nberwo:21298
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