Dominated Choices and Medicare Advantage Enrollment

42 Pages Posted: 2 Jun 2014 Last revised: 22 Feb 2025

See all articles by Chris Afendulis

Chris Afendulis

Harvard University - Department of Health Care Policy

Anna Sinaiko

Harvard University

Richard G. Frank

Harvard Medical School; National Bureau of Economic Research (NBER)

Date Written: May 2014

Abstract

Research in behavioral economics suggests that certain circumstances, such as large numbers of complex options or revisiting prior choices, can lead to decision errors. This paper explores the enrollment decisions of Medicare beneficiaries in the Medicare Advantage (MA) program. During the time period we study (2007-2010), private fee-for-service (PFFS) plans offered enhanced benefits beyond those of traditional Medicare (TM) without any restrictions on physician networks or additional cost, making TM a dominated choice relative to PFFS. Yet more than three quarters of Medicare beneficiaries remained in TM during our study period. We explore two possible explanations for this behavior: status quo bias and choice overload. Our results suggest that status quo bias plays an important role; the rate of MA enrollment was significantly higher among new Medicare beneficiaries than among incumbents. Our results also provide some evidence of choice overload; while the MA enrollment rate did not decline with an increase in the number of plans, among incumbent beneficiaries it failed to increase. Our results illustrate the importance of the choice environment that is in place when enrollees first enter the Medicare program.

Suggested Citation

Afendulis, Chris and Sinaiko, Anna and Frank, Richard G., Dominated Choices and Medicare Advantage Enrollment (May 2014). NBER Working Paper No. w20181, Available at SSRN: https://ssrn.com/abstract=2444568

Chris Afendulis (Contact Author)

Harvard University - Department of Health Care Policy ( email )

180 Longwood Avenue
Boston, MA 02115
United States

Anna Sinaiko

Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

Richard G. Frank

Harvard Medical School ( email )

Department of Health Care Policy
Boston, MA 02115
United States
617-432-0178 (Phone)
617-432-1219 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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