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Subsidy Design in Privately-Provided Social Insurance: Lessons from Medicare Part D

Francesco Decarolis (), Maria Polyakova () and Stephen Ryan ()

No 21298, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The efficiency of publicly-subsidized, privately-provisioned social insurance programs depends on the interaction between strategic insurers and the subsidy mechanism. We study this interaction in the context of Medicare's prescription drug coverage program. We find that the observed mechanism is successful in keeping "raise-the-subsidy" incentives relatively low, acts much like a at voucher, and obtains a level of welfare close to the optimal voucher. Across a range of counterfactuals, we find that more efficient subsidy mechanisms share three features: they retain the marginal elasticity of demand, limit the exercise of market power, and preserve the link between prices and marginal costs.

JEL-codes: H2 H4 I11 I18 L1 L2 (search for similar items in EconPapers)
Date: 2015-06
New Economics Papers: this item is included in nep-com, nep-hea, nep-ias, nep-ind and nep-pbe
Note: HC IO PE
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