Search Costs and Medicare Plan Choice

38 Pages Posted: 7 Apr 2008 Last revised: 12 Feb 2015

See all articles by Ian M. McCarthy

Ian M. McCarthy

Emory University - Department of Economics

Rusty Tchernis

Georgia State University - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Date Written: March 1, 2008

Abstract

There is increasing evidence suggesting that Medicare beneficiaries do not make fully informed decisions when choosing among alternative Medicare health plans. To the extent that deciphering the intricacies of alternative plans consumes time and money, the Medicare health plan market is one in which search costs may play an important role. To account for this, we split beneficiaries into two groups - those who are informed and those who are uninformed. If uninformed, beneficiaries only use a subset of covariates to compute their maximum utilities, and if informed, they use the full set of variables considered. In a Bayesian framework with Markov Chain Monte Carlo (MCMC) methods, we estimate search cost coefficients based on the minimum and maximum statistics of the search cost distribution, incorporating both horizontal differentiation and information heterogeneities across eligibles. Our results suggest that, conditional on being uninformed, older, higher income beneficiaries with lower self-reported health status are more likely to utilize easier access to information.

Keywords: Search, Medicare Health Plan Choice, Discrete Choice Models, Bayesian Methods

JEL Classification: C11, C21, D21, D43, M31

Suggested Citation

McCarthy, Ian M. and Tchernis, Rusty, Search Costs and Medicare Plan Choice (March 1, 2008). McCarthy, I. and R. Tchernis. 2010. “Search Costs and Medicare Plan Choice,” Health Economics 19(10):1142-1165., Available at SSRN: https://ssrn.com/abstract=1116253 or http://dx.doi.org/10.2139/ssrn.1116253

Center for Applied Economics And Policy Research (Contact Author)

Indiana University Bloomington - Department of Economics

Wylie Hall
Bloomington, IN 47405-6620
United States

Ian M. McCarthy

Emory University - Department of Economics ( email )

1602 Fishburne Drive
Atlanta, GA 30322
United States

Rusty Tchernis

Georgia State University - Department of Economics ( email )

P.O. Box 3992
Atlanta, GA 30302-3992
United States

HOME PAGE: http://www2.gsu.edu/~ecort

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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IZA Institute of Labor Economics ( email )

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Germany

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