Information Frictions & Insurer Plan Design: Evidence from Medicare Advantage

36 Pages Posted: 21 Dec 2015 Last revised: 30 Nov 2017

Raymond Kluender

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

Evan Mast

Upjohn Institute

Date Written: June 20, 2017

Abstract

Information frictions in markets for insurance affect not only the choices consumers make, but also the menu of plans insurers offer. We illustrate this observation using an information friction in Medicare Advantage — beneficiaries pay two premiums, and one is much more salient. We begin by estimating demand and finding a larger elasticity for the salient versus non-salient premium. Next, we show that a model of insurer plan design produces simulated premiums matching the observed distribution when accounting for differential salience, but not when assuming equal elasticities across the two premiums. Finally, we simulate how plan enrollment would change if the friction were removed. Consumer surplus increases by $73/year when allowing insurers to redesign their plans, versus only $5/year holding supply fixed.

Keywords: Medicare, Health Insurance Exchanges, Salience, Medicare Advantage, ACA

JEL Classification: I11, I13, D12, G22

Suggested Citation

Kluender, Raymond and Mast, Evan, Information Frictions & Insurer Plan Design: Evidence from Medicare Advantage (June 20, 2017). Available at SSRN: https://ssrn.com/abstract=2705863 or http://dx.doi.org/10.2139/ssrn.2705863

Raymond Kluender

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

50 Memorial Drive
E52-391
Cambridge, MA 02142
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Evan Mast (Contact Author)

Upjohn Institute ( email )

300 South Westnedge Avenue
Kalamazoo, MI 49007-4686
United States

HOME PAGE: http://https://sites.google.com/site/evanemast/home

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