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Pricing and Incentives in Publicly Subsidized Health Care Markets: the Case of Medicare Part D

Author

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  • Francesco Decarolis

    () (Department of Economics, University of Wisconsin-Madison)

Abstract

In Medicare Part D, low income individuals receive subsidies to enroll into insurance plans. This paper studies how premiums are distorted by the combined effects of this subsidy and the default assignment of low income enrollees into plans. Removing this distortion could reduce the cost of the program without worsening consumers' welfare. Using data from the the first five years of the program, an econometric model is used to estimate consumers demand for plans and to compute what premiums would be without the subsidy distortion. Preliminary estimates suggest that the reduction in premiums of affected plans would be substantial.

Suggested Citation

  • Francesco Decarolis, 2012. "Pricing and Incentives in Publicly Subsidized Health Care Markets: the Case of Medicare Part D," PIER Working Paper Archive 12-026, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  • Handle: RePEc:pen:papers:12-026
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    File URL: http://economics.sas.upenn.edu/sites/economics.sas.upenn.edu/files/12-026_0.pdf
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    References listed on IDEAS

    as
    1. Darius Lakdawalla & Wesley Yin, 2015. "Insurers’ Negotiating Leverage and the External Effects of Medicare Part D," The Review of Economics and Statistics, MIT Press, vol. 97(2), pages 314-331, May.
    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. M. Kate Bundorf & Jonathan Levin & Neale Mahoney, 2012. "Pricing and Welfare in Health Plan Choice," American Economic Review, American Economic Association, vol. 102(7), pages 3214-3248, December.
    4. Francesco Decarolis, 2009. "When the highest bidder loses the auction: theory and evidence from public procurement," Temi di discussione (Economic working papers) 717, Bank of Italy, Economic Research and International Relations Area.
    5. Claudio Lucarelli & Jeffrey Prince & Kosali Simon, 2012. "The Welfare Impact Of Reducing Choice In Medicare Part D: A Comparison Of Two Regulation Strategies," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(4), pages 1155-1177, November.
    6. Florian Heiss & Daniel McFadden & Joachim Winter, 2010. "Mind the Gap! Consumer Perceptions and Choices of Medicare Part D Prescription Drug Plans," NBER Chapters,in: Research Findings in the Economics of Aging, pages 413-481 National Bureau of Economic Research, Inc.
    7. Jason T. Abaluck & Jonathan Gruber, 2009. "Choice Inconsistencies Among the Elderly: Evidence from Plan Choice in the Medicare Part D Program," NBER Working Papers 14759, National Bureau of Economic Research, Inc.
    8. Timothy G. Conley & Francesco Decarolis, 2016. "Detecting Bidders Groups in Collusive Auctions," American Economic Journal: Microeconomics, American Economic Association, vol. 8(2), pages 1-38, May.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Kate Ho & Joseph Hogan & Fiona Scott Morton, 2015. "The Impact of Consumer Inattention on Insurer Pricing in the Medicare Part D Program," NBER Working Papers 21028, National Bureau of Economic Research, Inc.
    2. Keith M. Marzilli Ericson, 2014. "Consumer Inertia and Firm Pricing in the Medicare Part D Prescription Drug Insurance Exchange," American Economic Journal: Economic Policy, American Economic Association, vol. 6(1), pages 38-64, February.
    3. Maris Goldmanis & Antonio Penta & Francesco Decarolis, 2012. "Common Agency and Coordinated Bids in Sponsored Search Auctions," 2012 Meeting Papers 106, Society for Economic Dynamics.

    More about this item

    Keywords

    Medicare; prescription drugs; health insurance demand; auctions;

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement

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