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

64 Pages Posted: 8 Sep 2015 Last revised: 12 May 2023

See all articles by Maria Polyakova

Maria Polyakova

Stanford University - Department of Health Research and Policy; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: September 2015

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.

Suggested Citation

Polyakova, Maria, Regulation of Insurance with Adverse Selection and Switching Costs: Evidence from Medicare Part D (September 2015). NBER Working Paper No. w21541, Available at SSRN: https://ssrn.com/abstract=2656943

Maria Polyakova (Contact Author)

Stanford University - Department of Health Research and Policy ( email )

Redwood Building, T111
150 Governor's Lane
Stanford, CA 94305
United States

HOME PAGE: http://web.stanford.edu/~mpolyak/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
17
Abstract Views
285
PlumX Metrics