NBER Publications by Claudio Lucarelli

The average price of treating a colorectal cancer patient with chemotherapy increased from about $100 in 1993 to $36,000 in 2005, due largely to the approval and widespread use of five new drugs between 1996 and 2004. We examine whether the substantial increase in spending has been worth it. Using discrete choice methods to estimate demand, we construct a price index for colorectal cancer drugs for each quarter between 1993 and 2005 that takes into consideration the quality (i.e., the efficacy and side effects in randomized clinical trials) of each drug on the market and the value that oncologists place on drug quality. A naive price index, which makes no adjustments for the changing attributes of drugs on the market, greatly overstates the true price increase. By contrast, a hedonic price...

Medicare's prescription drug benefit (Part D) has been its largest expansion of benefits since 1965. Since the implementation of Part D, many regulatory proposals have been advanced to improve this government-created market. Among the most debated are proposals to limit the number of options, in response to concerns that there are "too many" plans. In this paper we study the welfare impacts of limiting the number of Part D plans. To do this, we first provide evidence that consumers view Medicare Part D plans as differentiated products. In doing so, we determine how much Medicare beneficiaries value the plans' various features -- an important measurement not only for our analysis, but also because these features are heavily dictated by policy. Second, using our demand- and supply-side estim...

Medicare's Part D offers heavily subsidized new drug coverage to 22.5 million seniors to date, of whom 16.5 million are in stand-alone drug plans (Department of Health and Human Services, 2006). The government delegated the delivery of the benefit to private insurance companies arguing that market incentives would lead them to provide coverage at the lowest price possible. The massive entry of plans and the large variety of actuarial designs and formularies offered make it complicated to assess how insurers set premiums during this first year of the program. This paper presents the first econometric evidence on whether premiums in the stand-alone drug plan markets are driven by the relevant factors predicted by insurance theory. Using data gathered from the Centers for Medicare and Medicai...