TY - JOUR
T1 - Inattention and switching costs as sources of inertia in medicare part d
AU - Heiss, Florian
AU - McFadden, Daniel
AU - Winter, Joachim
AU - Wuppermann, Amelie
AU - Zhou, Bo
N1 - Funding Information:
* Heiss: University of Dusseldorf (email: florian.heiss@hhu.de); McFadden: University of California, Berkeley and University of Southern California (email: mcfadden@econ.berkeley.edu); Winter: University of Munich (email: winter@lmu.de); Wuppermann: University of Halle-Wittenberg (email: amelie.wuppermann@wiwi.uni-halle.de); Zhou: University of Southern California (email: zhoub@usc.edu). Luigi Pistaferri was the coeditor for this article. An earlier version of this paper was circulated under the title, “Plan Switching and Inertia in Medicare Part D: Evidence from Administrative Data.” This research was funded by the Behavioral and Social Research program of the National Institute on Aging (grants P01AG05842-18, P01AG033559, R56AG026622-01A1, and RC4AG039036, P30AG024968), with additional support from the E. Morris Cox Fund at the University of California, Berkeley, and from Deutsche Forschungsgemeinschaft through CRC TRR 190 (project 280092119). We gratefully acknowledge comments by, and discussions with, Abi Adams, Eric French, Dana Goldman, Ben Handel, Kathleen McGarry, Nicole Maestas, Filip Mateˇjka, Takeshi Murooka, Maria Polyakova, and Justin Sydnor, participants at the 2014 AEA meetings in Philadelphia, the 2014 ASHEcon conference in Los Angeles, the 2014 CESifo Conference on Behavioral Economics in Munich, the 2014 CEAR/MRIC Behavioral Insurance Workshop in Munich, the 2014 German Health Econometrics Workshop in Wuppertal, the 2015 NBER Summer Institute, the 2015 Workshop on Policyholder Behavior at ETH Zurich, the 2016 EuHEA meetings in Hamburg, as well as seminar audiences at cemmap/UCL, DIW Berlin, George Mason University, Harvard University, Helmut Schmidt University Hamburg, Northwestern University, and the universities of Basel, Copenhagen, Essex, Leuven, Lugano, Lund, Oxford, Regensburg, St. Gallen, Tübingen, Wuppertal, Würzburg, and Zurich.
Publisher Copyright:
© 2021 American Economic Association. All rights reserved.
PY - 2021/9
Y1 - 2021/9
N2 - Consumers' health plan choices are highly persistent even though optimal plans change over time. This paper separates two sources of inertia, inattention to plan choice and switching costs. We develop a panel data model with separate attention and choice stages, linked by heterogeneity in acuity, i.e., the ability and willingness to make diligent choices. Using data from Medicare Part D, we find that inattention is an important source of inertia but switching costs also play a role, particularly for low- acuity individuals. Separating the two stages and allowing for heterogeneity is crucial for counterfactual simulations of interventions that reduce inertia.
AB - Consumers' health plan choices are highly persistent even though optimal plans change over time. This paper separates two sources of inertia, inattention to plan choice and switching costs. We develop a panel data model with separate attention and choice stages, linked by heterogeneity in acuity, i.e., the ability and willingness to make diligent choices. Using data from Medicare Part D, we find that inattention is an important source of inertia but switching costs also play a role, particularly for low- acuity individuals. Separating the two stages and allowing for heterogeneity is crucial for counterfactual simulations of interventions that reduce inertia.
UR - http://www.scopus.com/inward/record.url?scp=85114044048&partnerID=8YFLogxK
U2 - 10.1257/aer.20170471
DO - 10.1257/aer.20170471
M3 - Article
AN - SCOPUS:85114044048
SN - 0002-8282
VL - 111
SP - 2737
EP - 2781
JO - American Economic Review
JF - American Economic Review
IS - 9
ER -