Choice Inconsistencies among the Elderly: Evidence from Plan Choice in the Medicare Part D Program

Jason Abaluck and Jonathan Gruber

American Economic Review, 2011, vol. 101, issue 4, 1180-1210

Abstract: We evaluate the choices of elders across their insurance options under the Medicare Part D Prescription Drug plan, using a unique dataset of prescription drug claims matched to information on the characteristics of choice sets. We document that elders place much more weight on plan premiums than on expected out-of-pocket costs; value plan financial characteristics beyond any impacts on their own financial expenses or risk; and place almost no value on variance- reducing aspects of plans. Partial equilibrium welfare analysis implies that welfare would have been 27 percent higher if patients had all chosen rationally. (JEL D12, I11, J14)

Date: 2011
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