Plan Selection in Medicare Part D: Evidence from Administrative Data

47 Pages Posted: 16 Jun 2012

See all articles by Florian Heiss

Florian Heiss

Johannes Gutenberg University Mainz

Adam Leive

University of Virginia - Frank Batten School of Leadership and Public Policy

Daniel L. McFadden

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

Joachim K. Winter

Ludwig Maximilian University of Munich (LMU); 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: June 2012

Abstract

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.

Suggested Citation

Heiss, Florian and Leive, Adam and McFadden, Daniel L. and Winter, Joachim K., Plan Selection in Medicare Part D: Evidence from Administrative Data (June 2012). NBER Working Paper No. w18166, Available at SSRN: https://ssrn.com/abstract=2085153

Florian Heiss (Contact Author)

Johannes Gutenberg University Mainz ( email )

Saarstrasse 21
Mainz, D-55099
Germany

Adam Leive

University of Virginia - Frank Batten School of Leadership and Public Policy ( email )

235 McCormick Rd.
P.O. Box 400893
Charlottesville, VA 22904-4893
United States

Daniel L. McFadden

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 (LMU) ( email )

Geschwister-Scholl-Platz 1
Munich, DE 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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