Consumer Inertia and Firm Pricing in the Medicare Part D Prescription Drug Insurance Exchange

34 Pages Posted: 8 Sep 2012

See all articles by Keith M. Marzilli Ericson

Keith M. Marzilli Ericson

Boston University - Markets, Public Policy, and Law; National Bureau of Economic Research (NBER)

Date Written: September 2012

Abstract

I use the Medicare Part D prescription drug insurance market to examine the dynamics of firm interaction with consumers on an insurance exchange. Enrollment data show that consumers face switching frictions leading to inertia in plan choice, and a regression discontinuity design indicates initial defaults have persistent effects. In the absence of commitment to future prices, theory predicts firms respond to inertia by raising prices on existing enrollees, while introducing cheaper alternative plans. The complete set of enrollment and price data from 2006 through 2010 confirms this prediction: older plans have approximately 10% higher premiums than comparable new plans.

Suggested Citation

Ericson, Keith M. Marzilli, Consumer Inertia and Firm Pricing in the Medicare Part D Prescription Drug Insurance Exchange (September 2012). NBER Working Paper No. w18359. Available at SSRN: https://ssrn.com/abstract=2143546

Keith M. Marzilli Ericson (Contact Author)

Boston University - Markets, Public Policy, and Law ( email )

Boston, MA
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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