Plan Selection in Medicare Part D: Evidence from administrative Data

Heiss, Florian; Leive, Adam; McFadden, Daniel und Winter, Joachim (July 2012): Plan Selection in Medicare Part D: Evidence from administrative Data. SFB/TR 15 Discussion Paper No. 384

Abstract

We study the Medicare Part D prescription drug insurance program as a bellwether for designs of private, non-mandatory health insurance markets, focusing on the ability of consumers to evaluate and optimize their choices of plans. Our analysis of administrative data on medical claims in Medicare Part D suggests that less than 10 percent of individuals enroll in plans that are ex post optimal with respect to total cost (premiums and co-payments). Relative to the benchmark of a static decision rule, similar to the Plan Finder provided by the Medicare administration, that conditions next year’s plan choice only on the drugs consumed in the current year, enrollees lost on average about $300 per year. These numbers are hard to reconcile with decision costs alone; it appears that unless a sizeable fraction of consumers value plan features other than cost, they are not optimizing effectively.

• Item Type: Paper
• Faculties: Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems; Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems > A4 - Unvollständige Verträge, Marktinteraktion und soziale Vergleichsprozesse; Economics; Economics > Chairs > Chair of Empirical Economics
• Subjects: 300 Social sciences > 330 Economics
• Language: English