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American Economic Review Vol. 101 No. 3 2011

Part D Formulary and Benefit Design as a Risk-Steering Mechanism

Dana P. Goldman1; Geoffrey Joyce2; William B. Vogt3

1 Norman Topping Chair in Medicine and Public Policy and Director, Leonard D. Schaeffer Center for Health Policy and Economics, University of Southern California, 650 Childs Way, RGL 214, Los Angeles, CA 90089-0626. · 2 School of Pharmacy, University of Southern California, 1985 Zonal Avenue, Los Angeles, CA 90089-9121. · 3 Department of Economics, Terry College, University of Georgia, 513 Brooks Hall, Athens, GA 30602.

Abstract

Medicare Part D relies upon drug plan competition. Plans have enormous scope to design benefits and to set premiums, but they may not charge differential premiums based on risk. We use the formulary and benefit design of all Medicare prescription drug plans and pharmacy claims data to construct a simulation model of out-of-pocket drug spending. We use this simulation model to examine individual incentives in Medicare Part D for adverse selection. We find that high drug users have much stronger incentives to enroll in generous plans than do low users, thus there is significant scope for adverse selection.

DOI
10.1257/aer.101.3.382
Volume
101
Issue
3
Pages
382-386
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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