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

Maria Polyakova

American Economic Journal: Applied Economics, 2016, vol. 8, issue 3, 165-95

Abstract: I take advantage of regulatory and pricing dynamics in Medicare Part D to explore interactions among adverse selection, inertia, and regulation. I first document novel evidence of adverse selection and switching frictions within Part D using detailed administrative data. I then estimate a contract choice and pricing model that quantifies the importance of inertia for risk sorting. I find that in Part D switching costs help sustain an adversely-selected equilibrium. I also estimate that active ?decision making in the existing policy environment could lead to a substantial gain in annual consumer surplus of on average $400-$600 per capita--20 percent to 30 percent of average annual spending.

JEL-codes: D82 G22 H51 I13 I18 (search for similar items in EconPapers)
Date: 2016
Note: DOI: 10.1257/app.20150004
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Working Paper: Regulation of Insurance with Adverse Selection and Switching Costs: Evidence from Medicare Part D (2015)
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