Consumer Inertia and Firm Pricing in the Medicare Part D Prescription Drug Insurance Exchange

Keith Ericson

American Economic Journal: Economic Policy, 2014, vol. 6, issue 1, 38-64

Abstract: I use the Medicare Part D prescription drug insurance market to examine the dynamics of firm interaction with consumers on an insurance exchange. Enrollment data show that consumers face switching frictions leading to inertia in plan choice, and a regression discontinuity design indicates initial defaults have persistent effects. In the absence of commitment to future prices, theory predicts firms respond to inertia by raising prices on existing enrollees, while introducing cheaper alternative plans. The complete set of enrollment and price data from 2006 through 2010 confirms this prediction: older plans have approximately 10 percent higher premiums than comparable new plans.

JEL-codes: G22 I13 I18 L11 L65 (search for similar items in EconPapers)
Date: 2014
Note: DOI: 10.1257/pol.6.1.38
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Citations: View citations in EconPapers (96)

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Working Paper: Consumer Inertia and Firm Pricing in the Medicare Part D Prescription Drug Insurance Exchange (2012)
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