The Welfare Impact of Reducing Choice in Medicare Part D: A Comparison of Two Regulation Strategies
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NBER Working Paper No. 14296
Issued in September 2008
NBER Program(s): HC
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Motivated by widely publicized concerns that there are “too many” plans, we structurally estimate (and validate) an equilibrium model of the Medicare Part D market to study the welfare impacts of two feasible, similar-sized approaches for reducing choice. One reduces the maximum number of firm offerings regionally; the other removes plans providing donut hole coverage – consumers’ most valued dimension. We find welfare losses are far smaller when coupled with elimination of a dimension of differentiation, as in the latter approach. We illustrate our findings’ relevance under current health care reforms, and consider the merits of instead imposing ex ante competition for entry.
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This paper was revised on October 26, 2011 Acknowledgments
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