WORKING PAPERS
Dynamic Purchasing Behavior in Healthcare Consumption
[Job Market Paper]
Existing empirical evidence from Medicare Part D documents significantly lower spending
and suboptimal behavior at the "donut hole", a region of low insurance coverage sandwiched
between two regions of higher coverage. Current efforts to explain the drop in drug adherence
rely heavily on time-discounting models with strong assumptions that recover far lower rates
of discounting than the broader literature would predict. This paper first develops an
alternative simple heuristic model with intuitions on how enrollees ought to behave by
formulating a perceived marginal out-of-pocket price based on objective probabilities that
updates as enrollees accumulate spending through their plans and the year. This approach
predicts that with continuously updating expectations, a beneficiary's perceived marginal
price and spending should be smooth and occur far in advance of region boundaries or
"kinks" early in the year. Further, the paper uses dynamic panel regressions controlling
for individual heterogeneity to measure actual behavior throughout the entire insurance
schedule. Overall, prescription claim frequencies do respond with significant foresight
to anticipated changes in coverage generosity, but they also exhibit a drop when entering
the coverage gap both early and late in the year. The magnitudes of these changes are
ultimately small, reaffirming that many prescription purchases are highly inelastic.
How Different are Insurance Purchases in Experiments and the Real World?, with L. Barseghyan and T. O'Donoghue. Coming Soon.
Contact Information
Lin Xu
Address:
Department of Economics
429 Uris Hall
Cornell University
Ithaca, NY 14853
E-mail:
lx82@cornell.edu
Phone:
(214) 404-8872