Working Paper: NBER ID: w19163
Authors: Jason Abaluck; Jonathan Gruber
Abstract: We study choice over prescription insurance plans by the elderly using government administrative data to evaluate how these choices are made and evolve over time. We find that there is large "foregone savings" from not choosing the lowest cost plan that has grown over time. We develop a structural framework that allows us to exactly decompose the changes in "foregone welfare" from inconsistent choices into supply and demand side factors. We find that foregone welfare increases over time due primarily to supply-side factors such as premiums and out-of-pocket costs; we estimate little learning at either the individual or cohort level.
Keywords: Medicare; Prescription Drug Insurance; Choice Inconsistencies; Welfare Analysis
JEL Codes: I11; I18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| foregone savings from not choosing the lowest cost plan (J17) | increased foregone welfare (D69) |
| rising premiums and out-of-pocket costs (G52) | increased foregone welfare (D69) |
| inertia (D52) | welfare losses (D69) |
| supply-side changes (E65) | increased choice inconsistencies (D80) |
| little learning at individual and cohort level (I26) | no significant improvement in plan choices (D52) |
| changing characteristics of plans (P11) | welfare outcomes for consumers (D69) |