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.
Marzilli Ericson, Keith M.
"Consumer Inertia and Firm Pricing in the Medicare Part D Prescription Drug Insurance Exchange."
American Economic Journal: Economic Policy,
Insurance; Insurance Companies; Actuarial Studies
Health Insurance, Public and Private
Health: Government Policy; Regulation; Public Health
Production, Pricing, and Market Structure; Size Distribution of Firms
Chemicals; Rubber; Drugs; Biotechnology