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American Economic Review: Vol. 101 No. 3 (May 2011)

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Heterogeneity in Choice Inconsistencies among the Elderly: Evidence from Prescription Drug Plan Choice

Article Citation

Abaluck, Jason, and Jonathan Gruber. 2011. "Heterogeneity in Choice Inconsistencies among the Elderly: Evidence from Prescription Drug Plan Choice." American Economic Review, 101(3): 377-81.

DOI: 10.1257/aer.101.3.377

Abstract

This paper investigates the degree to which choice inconsistencies documented in the context of Medicare Part D plan choice vary across consumers and geographic regions. Our main finding is that there is surprisingly little variation: regardless of age, gender, predicted drug expenditures or the predictability of drug demand consumers underweight out of pocket costs relative to premiums and fail to consider the individualized consequences of plan characteristics; as a result, they frequently choose plans which are dominated in the sense that an alternative plan provides better risk protection at a lower cost. We find limited evidence that the sickest individuals had more difficulty with plan choice, and we document that much of the variation in potential cost savings across states comes from variation in choice sets, not variation in consumers ability to choose.

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Authors

Abaluck, Jason (MIT)
Gruber, Jonathan (MIT)

JEL Classifications

D12: Consumer Economics: Empirical Analysis
I18: Health: Government Policy; Regulation; Public Health
J14: Economics of the Elderly; Economics of the Handicapped; Non-labor Market Discrimination


American Economic Review


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