Working Paper: NBER ID: w14296
Authors: Claudio Lucarelli; Jeffrey Prince; Kosali Simon
Abstract: Motivated by widely publicized concerns that there are "too many" plans, we structurally estimate (and validate) an equilibrium model of the Medicare Part D market to study the welfare impacts of two feasible, similar-sized approaches for reducing choice. One reduces the maximum number of firm offerings regionally; the other removes plans providing donut hole coverage - consumers' most valued dimension. We find welfare losses are far smaller when coupled with elimination of a dimension of differentiation, as in the latter approach. We illustrate our findings' relevance under current health care reforms, and consider the merits of instead imposing ex ante competition for entry.
Keywords: Medicare Part D; consumer welfare; regulation strategies; healthcare policy
JEL Codes: H42; H51; I11; I18; L13; L51; L88
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| removing plans that cover the donut hole (I13) | decrease in consumer surplus (D11) |
| removing plans that cover the donut hole (I13) | decrease in producer surplus (D41) |
| removing plans that cover the donut hole (I13) | drop in enrollment (I21) |
| limiting firms to two plans per region (L10) | decrease in consumer surplus (D11) |
| limiting firms to two plans per region (L10) | decrease in producer surplus (D41) |
| limiting firms to two plans per region (L10) | drop in enrollment (I21) |
| limiting firms to two plans per region (L10) | increase in premiums (G52) |