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.

Acknowledgments

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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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