Evaluating Consumers&Apos; Choices of Medicare Part D Plans: A Study in Behavioral Welfare Economics

65 Pages Posted: 19 Mar 2019 Last revised: 9 Apr 2021

See all articles by Michael P. Keane

Michael P. Keane

University of New South Wales

Jonathan Ketcham

Arizona State University (ASU) - Marketing Department

Nicolai Kuminoff

Arizona State University (ASU) - Economics Department

Timothy Neal

UNSW Australia Business School, School of Economics

Date Written: March 2019

Abstract

We propose new methods to model behavior and conduct welfare analysis in complex environments where some choices are unlikely to reveal preferences. We develop a mixture-of-experts model that incorporates heterogeneity in consumers’ preferences and in their choice processes. We also develop a method to decompose logit errors into latent preferences versus optimization errors. Applying these methods to Medicare beneficiaries’ prescription drug insurance choices suggests that: (1) average welfare losses from suboptimal choices are small, (2) beneficiaries with dementia and depression have larger losses, and (3) policies that simplify choice sets offer small average benefits, helping some people but harming others.

Suggested Citation

Keane, Michael P. and Ketcham, Jonathan D. and Kuminoff, Nicolai and Neal, Timothy, Evaluating Consumers&Apos; Choices of Medicare Part D Plans: A Study in Behavioral Welfare Economics (March 2019). NBER Working Paper No. w25652, Available at SSRN: https://ssrn.com/abstract=3354306

Michael P. Keane (Contact Author)

University of New South Wales ( email )

Sydney, NSW
Australia

Jonathan D. Ketcham

Arizona State University (ASU) - Marketing Department ( email )

Tempe, AZ 85287-4106
United States
4809655507 (Phone)

HOME PAGE: http://wpcarey.asu.edu/directory/people/profile.cfm?person=2179827

Nicolai Kuminoff

Arizona State University (ASU) - Economics Department ( email )

Tempe, AZ 85287-3806
United States

Timothy Neal

UNSW Australia Business School, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia

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