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  3. American Economic Review
  4. August 2016
  5. Evolving Choice Inconsistencies in Choice of Prescription Drug Insurance

Evolving Choice Inconsistencies in Choice of Prescription Drug Insurance

  • Jason Abaluck
  • Jonathan Gruber
American Economic Review
vol. 106, no. 8, August 2016
(pp. 2145-84)
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Abstract

We study choice over prescription insurance plans by the elderly using government administrative data to evaluate how these choices evolve over time. We find large "foregone savings" from not choosing the lowest cost plan that has grown over time. We develop a structural framework to decompose the changes in "foregone welfare" from inconsistent choices into choice set changes and choice function changes from a fixed choice set. We find that foregone welfare increases over time due primarily to changes in plan characteristics such as premiums and out-of-pocket costs; we estimate little learning at either the individual or cohort level.

Citation

Abaluck, Jason, and Jonathan Gruber. 2016. "Evolving Choice Inconsistencies in Choice of Prescription Drug Insurance." American Economic Review, 106 (8): 2145-84. DOI: 10.1257/aer.20130778

Additional Materials

JEL Classification

  • G22 Insurance; Insurance Companies; Actuarial Studies
  • H51 National Government Expenditures and Health
  • I13 Health Insurance, Public and Private
  • I18 Health: Government Policy; Regulation; Public Health
  • J14 Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination