The Welfare Impact of Reducing Choice in Medicare Part D: A Comparison of Two Regulation Strategies

42 Pages Posted: 11 Aug 2008 Last revised: 13 May 2014

Claudio Lucarelli

Cornell University - Department of Policy Analysis & Management (PAM)

Jeffrey Prince

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy

Kosali Ilayperuma Simon

Indiana University Bloomington - School of Public & Environmental Affairs (SPEA); National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: April 2011

Abstract

Motivated by widely publicized concerns that there are “too many” plans, we structurally estimate (and validate) an equilibrium model of the Medicare Part D market to study the welfare impacts of two feasible, similar-sized approaches for reducing choice. One reduces the maximum number of firm offerings regionally; the other removes plans providing donut hole coverage – consumers’ most valued dimension. We find welfare losses are far smaller when coupled with elimination of a dimension of differentiation, as in the latter approach. We illustrate our findings’ relevance under current health care reforms, and consider the merits of instead imposing ex ante competition for entry.

Keywords: Medicare Part D, regulation, number of plans, product differentiation, discrete choice

JEL Classification: H42, H51, I11, I18, L13, L51, L88

Suggested Citation

Lucarelli, Claudio and Prince, Jeffrey and Simon, Kosali Ilayperuma, The Welfare Impact of Reducing Choice in Medicare Part D: A Comparison of Two Regulation Strategies (April 2011). Available at SSRN: https://ssrn.com/abstract=1217662 or http://dx.doi.org/10.2139/ssrn.1217662

Claudio Lucarelli

Cornell University - Department of Policy Analysis & Management (PAM) ( email )

120 Martha Van Rensselaer Hall
Ithaca, NY 14853
United States

Jeffrey Prince (Contact Author)

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy ( email )

Bloomington, IN 47405
United States

Kosali Ilayperuma Simon

Indiana University Bloomington - School of Public & Environmental Affairs (SPEA) ( email )

1315 East Tenth Street
Bloomington, IN 47405
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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