Information Frictions & Insurer Plan Design: Evidence from Medicare Advantage
36 Pages Posted: 21 Dec 2015 Last revised: 30 Nov 2017
Date Written: June 20, 2017
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: Suggested Citation