Medicare Part D: Are Insurers Gaming the Low Income Subsidy Design?
American Economic Review, 105(4), pp. 1547-80, 2015
34 Pages Posted: 8 Nov 2019
Date Written: April 2015
This paper shows how in Medicare Part D insurers’ gaming of the subsidy paid to low-income enrollees distorts premiums and raises the program cost. Using plan-level data from the first five years of the program, I find multiple instances of pricing strategy distortions for the largest insurers. Instrumental variable estimates indicate that the changes in a concentration index measuring the manipulability of the subsidy can explain a large share of the premium growth observed between 2006 and 2011. Removing this distortion could reduce the cost of the program without worsening consumer welfare.
Keywords: Medicare, Subsidy
JEL Classification: G22, H51, I13, I18
Suggested Citation: Suggested Citation