Mind the gap! : Consumer perceptions and choices of Medicare Part D prescription drug plans

Heiss, Florian ; McFadden, Daniel ; Winter, Joachim

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URL: https://ub-madoc.bib.uni-mannheim.de/1862
URN: urn:nbn:de:bsz:180-madoc-18621
Document Type: Working paper
Year of publication: 2008
The title of a journal, publication series: MEA Discussion Papers
Volume: 156
Place of publication: Mannheim
Publication language: English
Institution: School of Law and Economics > Sonstige - Fakultät für Rechtswissenschaft und Volkswirtschaftslehre
MADOC publication series: Veröffentlichungen des MEA (Mannheim Research Institute For the Economics of Aging) > MEA Discussion Papers
Subject: 330 Economics
Classification: JEL: C25 C61 C81 D12 D91 H51 I10 I12 I18 ,
Subject headings (SWD): Medicare , Verschreibungspflichtiges Arzneimittel , Krankenversicherung , Gesundheitswesen
Keywords (English): Medicare , prescription drugs , insurance demand , health production , dynamic discrete choice
Abstract: Medicare Part D provides prescription drug coverage through Medicare approved plans offered by private insurance companies and HMOs. In this paper, we study the role of current prescription drug use and health risks, related expectations, and subjective factors in the demand for prescription drug insurance. To characterize rational behavior in the cmplex Part D environment, we develop an intertemporal optimization model of enrollment decisions. We generally find that senior's choices respond to the incentives provided by their own health status and the market environment as predicted by the optimization model. The proportion on individuals who do not attain the optimal choice is small, but the margin for errors is also small since enrollment is transparently optimal for most eligible seniors. Further, there is also evidence that seniors over-react to some salient features of the choice situation, do not take full account of the future benefit and cost consequences of their decicsions, or the expected net benefits and risk properties of alternative plans.
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