Bunching at the kink: Implications for spending responses to health insurance contracts

Liran Einav, Amy Finkelstein and Paul Schrimpf

Journal of Public Economics, 2017, vol. 146, issue C, 27-40

Abstract: A large literature in empirical public finance relies on “bunching” to identify a behavioral response to non-linear incentives and to translate this response into an economic object to be used counterfactually. We conduct this type of analysis in the context of prescription drug insurance for the elderly in Medicare Part D, where a kink in the individual's budget set generates substantial bunching in annual drug expenditure around the famous “donut hole.” We show that different alternative economic models can match the basic bunching pattern, but have very different quantitative implications for the counterfactual spending response to alternative insurance contracts. These findings illustrate the importance of modeling choices in mapping a compelling reduced form pattern into an economic object of interest.

Keywords: Bunching; Medicare; Health insurance; Health care (search for similar items in EconPapers)
JEL-codes: D12 G22 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (40)

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Related works:
Chapter: Bunching at the Kink: Implications for Spending Responses to Health Insurance Contracts (2016)
Working Paper: Bunching at the Kink: Implications for Spending Responses to Health Insurance Contracts (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:146:y:2017:i:c:p:27-40

DOI: 10.1016/j.jpubeco.2016.11.011

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