Strategic Tier Design in Health Insurance: The Case of Medicare Part D

Léa Bignon, Alessandro Iaria and Laura Lasio

No 17937, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We study the role of tier design in Medicare Part D. In the period 2013-2017, plans expanded the number of tiers in their formularies from three/four to five and systematically shifted generics to higher tiers subject to higher cost sharing. The systematic tier upgrading caused significant increases in the out-of-pocket costs, up to six times for some generics. This resulted in additional average per-enrollee spending on generics of $76 in 2017, totalling $1.5 billion for the Part D population, and increased mortality by 5.4% due to reduced utilization of generics with documented mortality benefits.

Date: 2023-02
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