Evaluating consumers’ choices of Medicare Part D plans: A study in behavioral welfare economics

Michael Keane, Jonathan Ketcham, Nicolai Kuminoff, Timothy Neal

Research output: Contribution to journalArticlepeer-review

Abstract

We propose new methods to model behavior and conduct welfare analysis in complex environments where some choices are unlikely to reveal preferences. We develop a mixture-of-experts model that incorporates heterogeneity in consumers’ preferences and in their choice processes. We also develop a method to decompose logit errors into latent preferences versus optimization errors. Applying these methods to Medicare beneficiaries’ prescription drug insurance choices suggests that: (1) average welfare losses from suboptimal choices are small, (2) beneficiaries with dementia and depression have larger losses, and (3) policies that simplify choice sets offer small average benefits, helping some people but harming others.

Original languageEnglish (US)
Pages (from-to)107-140
Number of pages34
JournalJournal of Econometrics
Volume222
Issue number1
DOIs
StateAccepted/In press - 2020
Externally publishedYes

Keywords

  • Behavioral economics
  • Decision utility
  • Health insurance
  • Hedonic utility
  • Market mapping
  • Medicare
  • Mixed logit
  • Mixture of experts
  • Random utility model
  • Welfare

ASJC Scopus subject areas

  • Economics and Econometrics

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