Regulation of Insurance with Adverse Selection and Switching Costs: Evidence from Medicare Part D

Maria Polyakova

No 21541, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: I take advantage of regulatory and pricing dynamics in Medicare Part D to empirically explore interactions among adverse selection, switching costs, and regulation. I first document novel evidence of adverse selection and switching costs within Part D using detailed administrative data. I then estimate a contract choice and pricing model in order to quantify the importance of switching costs for risk-sorting, and for policies that may affect risk sorting. I first find that in Part D, switching costs help sustain an adversely-selected equilibrium and are likely to mute the ability of ACA policies to improve risk allocation across contracts, leading to higher premiums for some enrollees. I then estimate that, overall, decreasing the cost of active decision-making in the Part D environment could lead to a substantial gain in consumer surplus of on average $400-$600 per capita, which is around 20%-30% of average annual per capita drug spending.

JEL-codes: H0 H50 H51 I1 I13 L51 L78 (search for similar items in EconPapers)
Date: 2015-09
New Economics Papers: this item is included in nep-com, nep-cta, nep-hea and nep-ias
Note: AG EH IO PE
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Citations: View citations in EconPapers (20)

Published as Maria Polyakova, 2016. "Regulation of Insurance with Adverse Selection and Switching Costs: Evidence from Medicare Part D," American Economic Journal: Applied Economics, American Economic Association, vol. 8(3), pages 165-95, July.

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Journal Article: Regulation of Insurance with Adverse Selection and Switching Costs: Evidence from Medicare Part D (2016)
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