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Risk attitudes and Medicare Part D enrollment decisions

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  • Vetter, Stefan
  • Heiss, Florian
  • McFadden, Daniel
  • Winter, Joachim

Abstract

The new Medicare Part D program provides prescription drug coverage for older Americans through highly subsidized and tightly regulated plans offered by private insurance firms. For most eligible individuals without coverage from other sources, obtaining Part D coverage would be rational, but it requires active enrollment and plan choice decisions. We investigate if non-enrollment in Medicare Part D can partly be explained by risk aversion. Data are taken from a national online survey conducted just after the introduction Part D. The survey included a context-free and a context-related hypothetical lottery to measure an individual’s attitude towards risk. Respondents who are risk tolerant according to these measures were significantly less likely to enroll in Part D. We also illustrate that hypothetical choice questions designed to elicit risk attitudes are subject to reference-point effects. Even minor differences in the priming of respondents can result in potentially misleading conclusions about the role of risk aversion in the insurance decisions.

Suggested Citation

  • Vetter, Stefan & Heiss, Florian & McFadden, Daniel & Winter, Joachim, 2012. "Risk attitudes and Medicare Part D enrollment decisions," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 373, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  • Handle: RePEc:trf:wpaper:373
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    Cited by:

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    3. Xiaodong Du & Hongli Feng & David A. Hennessy, 2017. "Rationality of Choices in Subsidized Crop Insurance Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 99(3), pages 732-756.
    4. Francesco Decarolis & Maria Polyakova & Stephen P. Ryan, 2020. "Subsidy Design in Privately Provided Social Insurance: Lessons from Medicare Part D," Journal of Political Economy, University of Chicago Press, vol. 128(5), pages 1712-1752.

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    More about this item

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • I1 - Health, Education, and Welfare - - Health

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