Evolving Choice Inconsistencies in Choice of Prescription Drug Insurance
We study choice over prescription insurance plans by the elderly using government administrative data to evaluate how these choices are made and evolve over time. We find that there is large "foregone savings" from not choosing the lowest cost plan that has grown over time. We develop a structural framework that allows us to exactly decompose the changes in "foregone welfare" from inconsistent choices into supply and demand side factors. We find that foregone welfare increases over time due primarily to supply-side factors such as premiums and out-of-pocket costs; we estimate little learning at either the individual or cohort level.
We are grateful to the National Institute on Aging for financial support (NIA grants R01 AG031270), to Chris Behrer, Ayesha Mahmud and Adrienne Sabety for excellent research assistance, and to seminar participants at Berkeley, Columbia, Cornell, Dartmouth, MIT, NBER, Yale and AEA for helpful comments. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Jonathan Gruber is a member of the Commonwealth Health Connector Board that was responsible for setting the policies studied in this research.
Jason Abaluck & Jonathan Gruber, 2016. "Evolving Choice Inconsistencies in Choice of Prescription Drug Insurance," American Economic Review, vol 106(8), pages 2145-2184.