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

See all articles by Francesco Decarolis

Francesco Decarolis

Bocconi University - Department of Economics

Date Written: April 2015

Abstract

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

Decarolis, Francesco, Medicare Part D: Are Insurers Gaming the Low Income Subsidy Design? (April 2015). American Economic Review, 105(4), pp. 1547-80, 2015. Available at SSRN: https://ssrn.com/abstract=3475633

Francesco Decarolis (Contact Author)

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

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