Plan selection in Medicare Part D: Evidence from administrative data

Abstract

We study the Medicare Part D prescription drug insurance program as a bellwether for designs of private, non-mandatory health insurance markets, focusing on the ability of consumers to evaluate and optimize their choices of plans. Our analysis of administrative data on medical claims in Medicare Part D suggests that fewer than 25 percent of individuals enroll in plans that are ex ante as good as the least cost plan specified by the Plan Finder tool made available to seniors by the Medicare administration, and that consumers on average have expected excess spending of about $300 per year, or about 15 percent of expected total out-of-pocket cost for drugs and Part D insurance. These numbers are hard to reconcile with decision costs alone; it appears that unless a sizeable fraction of consumers place large values on plan features other than cost, they are not optimizing effectively.

Preparedness of Americans for the Affordable Care Act

“…Unfortunately, there is evidence that individuals are usually at risk for making poor choices when it comes to health insurance (1). Although exchanges in Medicare Part D, for example, are considered a success in terms of achieving high enrollment rates (2, 3), recent analysis on plan choice and drug claims shows that the majority of enrollees ignore Medicare's readily available plan recommendations, and choose plans that fail to minimize their expected costs based on current drug needs, health status, and health risks (4,5). Moreover, consumers have been shown not to understand traditional health insurance plans (6).…”

The Behavioral Economics of Health and Health Care

“…Although open enrollment periods occur each year when people can switch plans, almost no one does, consistent with the status quo bias so commonly found in behavioral economic studies. Yet, switching to a cheaper plan could save on average ∼$300-500 per year (1,14,21). Similarly, research by Heiss and colleagues demonstrated that it could also save Medicare billions of dollars per year because the program subsidizes 75% of premium costs.…”

Patient Experiences in Selecting a Medicare Part D Prescription Drug Plan

“…Some studies have found that while seniors appreciate being able to choose from a variety of plans, they do not feel confident in their ability to do so and want the selection process to be easier (11). People are often not enrolled in the plan that would cover their drugs at the lowest price (12,13) and rarely change plans even when there are alternatives that provide ex ante coverage at a lower cost (14,15).…”