TY - JOUR AU - Abaluck,Jason T. AU - Gruber,Jonathan TI - Choice Inconsistencies Among the Elderly: Evidence from Plan Choice in the Medicare Part D Program JF - National Bureau of Economic Research Working Paper Series VL - No. 14759 PY - 2009 Y2 - February 2009 UR - http://www.nber.org/papers/w14759 L1 - http://www.nber.org/papers/w14759.pdf N1 - Author contact info: Jason Abaluck National Bureau of Economic Research 1050 Massachusetts Avenue Cambridge, MA 02138 Tel: 617/868-3900 E-Mail: abaluck@mit.edu Jonathan Gruber MIT Department of Economics E52-355 50 Memorial Drive Cambridge, MA 02142-1347 Tel: 617/253-8892 Fax: 617/253-1330 E-Mail: gruberj@mit.edu AB - The Medicare Part D Prescription Drug Plan represents the most significant privatization of the delivery of a public insurance benefit in recent history, with dozens of private insurers offering a wide range of products with varying prices and product features; the typical elder had a choice of roughly 40 stand-alone drug plans. In this paper we evaluate the choices of elders across this wide array of Part D options using a unique data set of prescription drug claims matched to information on the characteristics of choice sets. We first document that the vast majority of elders are choosing plans that are not on the "efficient portfolio" of plan choice in the sense that an alternative plan offers better risk protection at a lower cost. We then estimate several discrete choice models to document three dimensions along which elders are making choices which are inconsistent with optimization under full information: elders place much more weight on plan premiums than they do on expected out of pocket costs; they place almost no value on variance reducing aspects of plans; and they value plan financial characteristics beyond any impacts on their own financial expenses or risk.These findings are robust to a variety of specifications and econometric approaches. We develop an "adjusted" revealed preference approach that combines data from consumer choices with ex ante restrictions on preferences, and find that in a partial equilibrium setting, restricting the choice set to the three lowest average cost options would have likely raised welfare for elders under the program. ER -