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  3. American Economic Journal: Economic Policy
  4. August 2018
  5. Strategic Formulary Design in Medicare Part D Plans

Strategic Formulary Design in Medicare Part D Plans

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Abstract

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.

Citation

Lavetti, Kurt, and Kosali Simon. 2018. "Strategic Formulary Design in Medicare Part D Plans." American Economic Journal: Economic Policy, 10 (3): 154-92. DOI: 10.1257/pol.20160248

Additional Materials

JEL Classification

  • D82 Asymmetric and Private Information; Mechanism Design
  • 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
  • L65 Chemicals; Rubber; Drugs; Biotechnology; Plastics
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