Mind the Gap! Consumer Perceptions and Choices of Medicare Part D Prescription Drug Plans

87 Pages Posted: 29 Nov 2007 Last revised: 27 Sep 2010

See all articles by Florian Heiss

Florian Heiss

CESifo (Center for Economic Studies and Ifo Institute)

Daniel L. McFadden

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER)

Joachim K. Winter

Ludwig Maximilian University of Munich; CESifo (Center for Economic Studies and Ifo Institute); Max Planck Society for the Advancement of the Sciences - Munich Center for the Economics of Aging (MEA); Deutsche Bundesbank - Research Department

Date Written: November 2007

Abstract

Medicare Part D provides prescription drug coverage through Medicare approved plans offered by private insurance companies and HMOs. In this paper, we study the role of current prescription drug use and health risks, related expectations, and subjective factors in the demand for prescription drug insurance. To characterize rational behavior in the complex Part D environment, we develop an intertemporal optimization model of enrollment decisions. We generally find that seniors' choices respond to the incentives provided by their own health status and the market environment as predicted by the optimization model. The proportion of individuals who do not attain the optimal choice is small, but the margin for error is also small since enrollment is transparently optimal for most eligible seniors. Further, there is also evidence that seniors over-react to some salient features of the choice situation, do not take full account of the future benefit and cost consequences of their decisions, or the expected net benefits and risk properties of alternative plans.

Suggested Citation

Heiss, Florian and McFadden, Daniel L. and Winter, Joachim K., Mind the Gap! Consumer Perceptions and Choices of Medicare Part D Prescription Drug Plans (November 2007). NBER Working Paper No. w13627. Available at SSRN: https://ssrn.com/abstract=1033753

Florian Heiss

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschingerstr. 5
Munich, DE-81679
Germany

Daniel L. McFadden (Contact Author)

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Joachim K. Winter

Ludwig Maximilian University of Munich ( email )

Geschwister-Scholl-Platz 1
Munich, Bavaria 80539
Germany

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Max Planck Society for the Advancement of the Sciences - Munich Center for the Economics of Aging (MEA) ( email )

Amalienstrasse 33
Munich, 80799
Germany

Deutsche Bundesbank - Research Department ( email )

PO Box 10 06 02
D60006 Frankfurt
Germany

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