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

  • Francesco Decarolis

    ()

    (Department of Economics, University of Wisconsin-Madison)

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.

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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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Paper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 12-026.

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Length: 54 pages
Date of creation: 30 Jun 2012
Date of revision:
Handle: RePEc:pen:papers:12-026
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  1. 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.
  2. M. Kate Bundorf & Jonathan D. Levin & Neale Mahoney, 2008. "Pricing and Welfare in Health Plan Choice," NBER Working Papers 14153, National Bureau of Economic Research, Inc.
  3. Claudio Lucarelli & Jeffrey Prince & Kosali Simon, 2008. "The Welfare Impact of Reducing Choice in Medicare Part D: A Comparison of Two Regulation Strategies," NBER Working Papers 14296, National Bureau of Economic Research, Inc.
  4. Wesley Yin & Darius Lakdawalla, 2011. "Insurers’ Negotiating Leverage and the External Effects of Medicare Part D," Boston University - Department of Economics - Working Papers Series WP2011-065, Boston University - Department of Economics.
  5. 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.
  6. 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.
  7. 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.
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