Kurt J. Lavetti
Ohio State University
1945 N. High St.
Arps Hall 433
Columbus, OH 43210
Information about this author at RePEc
NBER Working Papers and Publications
|June 2016||Strategic Formulary Design in Medicare Part D Plans|
with Kosali Simon: w22338
The design of Medicare Part D causes most Medicare beneficiaries to receive fragmented health insurance, whereby prescription drugs and other medical care are covered by separate insurance plans. Fragmentation of insurance plans is potentially inefficient since separate insurers maximize profits over only one component of healthcare spending, despite many complementarities and substitutabilities between types of healthcare. Fragmentation of some plans but not others can also lead to market distortions due to differential adverse selection, as integrated plans may use drug formulary designs to induce enrollment by patients who are profitable under Parts A & B, while stand-alone drug plans have no such incentive. We study whether the design of insurance plans in Medicare Part D reflects thes...