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

Keith Ericson

No 18359, NBER Working Papers from National Bureau of Economic Research, Inc

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% higher premiums than comparable new plans.

JEL-codes: H51 I1 I11 I13 I18 I28 L11 L38 L51 Z18 (search for similar items in EconPapers)
Date: 2012-09
New Economics Papers: this item is included in nep-com, nep-hea, nep-ias and nep-mkt
Note: AG EH PE
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Published as Keith M. Marzilli Ericson, 2014. "Consumer Inertia and Firm Pricing in the Medicare Part D Prescription Drug Insurance Exchange," American Economic Journal: Economic Policy, American Economic Association, vol. 6(1), pages 38-64, February.

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