The Welfare Impact of Reducing Choice in Medicare Part D: A Comparison of Two Regulation Strategies

Claudio Lucarelli, Jeffrey Prince, Kosali Simon

NBER Working Paper No. 14296
Issued in September 2008, Revised in October 2011
NBER Program(s):Health Care

Motivated by widely publicized concerns that there are "too many" plans, we structurally estimate (and validate) an equilibrium model of the Medicare Part D market to study the welfare impacts of two feasible, similar-sized approaches for reducing choice. One reduces the maximum number of firm offerings regionally; the other removes plans providing donut hole coverage - consumers' most valued dimension. We find welfare losses are far smaller when coupled with elimination of a dimension of differentiation, as in the latter approach. We illustrate our findings' relevance under current health care reforms, and consider the merits of instead imposing ex ante competition for entry.

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Document Object Identifier (DOI): 10.3386/w14296

Published: Claudio Lucarelli & Jeffrey Prince & Kosali Simon, 2012. "The Welfare Impact Of Reducing Choice In Medicare Part D: A Comparison Of Two Regulation Strategies," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(4), pages 1155-1177, November. citation courtesy of

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