The design of Medicare Part D causes most beneficiaries to receive fragmented health insurance, with drug and medical coverage separated. Fragmentation is potentially inefficient since separate insurers optimize over only one component of healthcare spending, despite complementarities and substitutabilities between healthcare types. Fragmentation of only some plans can also lead to market distortions due to differential adverse selection, as integrated plans may use drug formularies to induce enrollment by patients that are profitable in the medical insurance market. We study the design of insurance plans in Medicare Part D and find that formularies reflect these two differences in incentives.
Lavetti, Kurt, and Kosali Simon.
"Strategic Formulary Design in Medicare Part D Plans."
American Economic Journal: Economic Policy,
Asymmetric and Private Information; Mechanism Design
Insurance; Insurance Companies; Actuarial Studies
National Government Expenditures and Health
Health Insurance, Public and Private
Health: Government Policy; Regulation; Public Health
Chemicals; Rubber; Drugs; Biotechnology; Plastics