Journal of Political Economy Vol. 128 No. 5 2020

Subsidy Design in Privately Provided Social Insurance: Lessons from Medicare Part D

Francesco Decarolis^1,2; Maria Polyakova^3,4,5; Stephen P. Ryan^4,6

¹ Institute for Economic Research · ² Bocconi University · ³ Center for Economic and Policy Research · ⁴ National Bureau of Economic Research · ⁵ Stanford University · ⁶ Washington University in St. Louis

Abstract

The efficiency of publicly-subsidized, privately-provisioned social insurance programs depends on the interaction between strategic insurers and the subsidy mechanism. We study this interaction in the context of Medicare's prescription drug coverage program. We find that the observed mechanism is successful in keeping "raise-the-subsidy" incentives relatively low, acts much like a flat voucher, and obtains a level of welfare close to the optimal voucher. Across a range of counterfactuals, we find that more efficient subsidy mechanisms share three features: they retain the marginal elasticity of demand, limit the exercise of market power, and preserve the link between prices and marginal costs.

DOI

10.1086/705550

Volume

128

Issue

5

Pages

1712-1752

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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