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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

Department of Economics
429 Uris Hall
Cornell University
Ithaca, NY 14853


(214) 404-8872