TY  - JOUR
AU  - McAdams,David
AU  - Schwarz,Michael
TI  - Perverse Incentives in the Medicare Prescription Drug Benefit
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12008
PY  - 2006
Y2  - February 2006
UR  - http://www.nber.org/papers/w12008
L1  - http://www.nber.org/papers/w12008.pdf
N1  - Author contact info:
David McAdams
Duke University
E-Mail: david.mcadams@duke.edu

Michael Schwarz
Yahoo! Research
2397 Shattuck Ave
Berkeley, CA 94704
Fax: 510/704-2401
E-Mail: no email available
AB  - We analyze some of the perverse incentives that may arise under the current Medicare prescription drug benefit design. In particular, risk adjustment for a stand-alone prescription drug benefit creates perverse incentives for prescription drug plans' coverage decisions and/or pharmaceutical companies' pricing decisions. This problem is new in that it does not arise with risk adjustment for other types of health care coverage. For this and other reasons, Medicare's drug benefit requires especially close regulatory oversight, now and in the future. We also consider a relatively minor change in how the benefit is financed that could lead to significant changes in how it functions. In particular, if all plans were required to charge the same premium, there would be less diversity in quality but also less budgetary uncertainty and less upward pressure on drug prices.
ER  -