The impact of consumer inattention on insurer pricing in the Medicare Part D program

Kate Ho, Joseph Hogan, Fiona Scott Morton

Research output: Contribution to journalArticle

19 Scopus citations

Abstract

The Medicare Part D program relies on consumer choice to provide insurers with incentives to offer low-priced, high-quality pharmaceutical insurance plans. We demonstrate that consumers switch plans infrequently and search imperfectly. We estimate a model of consumer plan choice with inattentive consumers and show that high observed premiums are consistent with insurers profiting from consumer inertia. We estimate the reduction in steady state plan premiums if all consumers were attentive. An average consumer could save $1050 over three years; government savings in the same period could amount to $1.3 billion or 1% of the cost of subsidizing the relevant enrollees.

Original languageEnglish (US)
Pages (from-to)877-905
Number of pages29
JournalRAND Journal of Economics
Volume48
Issue number4
DOIs
StatePublished - Dec 1 2017
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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