Choice Inconsistencies among the Elderly: Evidence from Plan Choice in the Medicare Part D Program

1180 The Medicare Modernization Act of 2003, better known as the legislation that added the Part D prescription drug benefit to the Medicare program, represents the single most significant expansion of public insurance programs in the US in the past 40 years. The most novel, and controversial, feature of this legislation was the use of multiple private insurance providers to deliver this new public insurance product. Unlike the traditional model of government mandated uniform insurance packages for all enrollees, under the Part D program dozens of private insurers were allowed to offer a wide range of products with varying prices and product features. Perhaps most well known was the extent to which plans covered the “donut hole,” a broad uncovered range of expenditures in the minimum mandated plan. This unprecedented privatization of the delivery of a public insurance product raises a host of important policy questions. Primary among these is the impact of allowing choice across so many private insurance options. The typical elder in our data (described below) faces a choice of over 40 stand-alone drugs plans, and our estimates suggest that the range of cost from the most to least expensive option facing an elder is comparable to the mean of those costs. Choice is clearly meaningful in this context. Yet, to date, we know almost nothing about how elders are making these crucial choices. This paper investigates the choices of elders for the newly formed Part D program in 2006. We analyze data that provide information on the Part D plans chosen and prescription drug utilization for a large sample of elders in the United States. These Choice Inconsistencies among the Elderly: Evidence from Plan Choice in the Medicare Part D Program