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Plan Selection in Medicare Part D: Evidence from administrative Data


  • Heiss, Florian
  • Leive, Adam
  • McFadden, Daniel
  • Winter, Joachim


We study the Medicare Part D prescription drug insurance program as a bellwether for designs of private, non-mandatory health insurance markets, focusing on the ability of consumers to evaluate and optimize their choices of plans. Our analysis of administrative data on medical claims in Medicare Part D suggests that less than 10 percent of individuals enroll in plans that are ex post optimal with respect to total cost (premiums and co-payments). Relative to the benchmark of a static decision rule, similar to the Plan Finder provided by the Medicare administration, that conditions next year’s plan choice only on the drugs consumed in the current year, enrollees lost on average about $300 per year. These numbers are hard to reconcile with decision costs alone; it appears that unless a sizeable fraction of consumers value plan features other than cost, they are not optimizing effectively.

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  • Heiss, Florian & Leive, Adam & McFadden, Daniel & Winter, Joachim, 2012. "Plan Selection in Medicare Part D: Evidence from administrative Data," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 384, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  • Handle: RePEc:trf:wpaper:384

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    References listed on IDEAS

    1. Keith Marzilli Ericson & Amanda Starc, 2012. "Heuristics and Heterogeneity in Health Insurance Exchanges: Evidence from the Massachusetts Connector," American Economic Review, American Economic Association, vol. 102(3), pages 493-497, May.
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    7. 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.
    8. 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.
    9. Mark V. Pauly & Yuhui Zeng, 2004. "Adverse Selection and the Challenges to Stand-Alone Prescription Drug Insurance," NBER Chapters,in: Frontiers in Health Policy Research, Volume 7, pages 55-74 National Bureau of Economic Research, Inc.
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    11. Laibson, David I. & Agarwal, Sumit & Driscoll, John C. & Gabaix, Xavier, 2009. "The Age of Reason: Financial Decisions over the Life-Cycle with Implications for Regulation," Scholarly Articles 4554335, Harvard University Department of Economics.
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    JEL classification:

    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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