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American Economic Journal: Economic Policy: Vol. 6 No. 1 (February 2014)

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Consumer Inertia and Firm Pricing in the Medicare Part D Prescription Drug Insurance Exchange

Article Citation

Marzilli Ericson, Keith M. 2014. "Consumer Inertia and Firm Pricing in the Medicare Part D Prescription Drug Insurance Exchange." American Economic Journal: Economic Policy, 6(1): 38-64.

DOI: 10.1257/pol.6.1.38

Abstract

I use the Medicare Part D prescription drug insurance market to examine the dynamics of firm interaction with consumers on an insurance exchange. Enrollment data show that consumers face switching frictions leading to inertia in plan choice, and a regression discontinuity design indicates initial defaults have persistent effects. In the absence of commitment to future prices, theory predicts firms respond to inertia by raising prices on existing enrollees, while introducing cheaper alternative plans. The complete set of enrollment and price data from 2006 through 2010 confirms this prediction: older plans have approximately 10 percent higher premiums than comparable new plans.

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Online Appendix (186.15 KB) | Download Data Set (855.57 KB) | Author Disclosure Statement(s) (26.10 KB)

Authors

Marzilli Ericson, Keith M. (Boston U)

JEL Classifications

G22: Insurance; Insurance Companies; Actuarial Studies
I13: Health Insurance, Public and Private
I18: Health: Government Policy; Regulation; Public Health
L11: Production, Pricing, and Market Structure; Size Distribution of Firms
L65: Chemicals; Rubber; Drugs; Biotechnology

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