Date and Time
October 3, 2007
1:30 PM - 3:00 PM

Availability
Open to the public
No RSVP required

Speaker
Kosali Simon - Assistant Professor, Department of Policy Analysis and Management at Cornell University and NBER

Medicare's Part D offered heavily subsidized new drug coverage to 22.5 million seniors in 2006 (and nearly 24 million in 2007), of whom roughly 17 million were in stand-alone drug plans (CMS, 2006 and 2007a). The government delegated the delivery of the benefit to private insurance companies arguing that market incentives would lead them to provide coverage at the lowest price possible. The massive entry of plans and the large variety of actuarial designs and formularies offered make it complicated to assess the relationship between premiums and plan characteristics during the first two years of the program.

This paper presents the first econometric analysis of premiums in the stand-alone drug plan markets. Using data gathered from the Centers for Medicare and Medicaid Services, I measure a plan's generosity as the simulated out of pocket payments for different sets of drugs. I also identify the listed full drug prices by each insurer and merge these with other plan and geographical characteristics to study variation in premiums. With 2007 data, I examine how changes in generosity of plans correlate with changes in premiums, and whether the relationships that exist between premiums and generosity in the first year persist in the second year. Based on the 2006 analysis, I find that the number of insurers in a market appears large enough such that changes do not appear to be correlated with premiums. The full drug prices listed appear to be reflected to some degree in the premiums charged. Plan characteristics such as the provision of extra coverage are correlated with higher premiums, but overall there is a puzzling weak relationship between premiums and simulated out of pocket payments for different sets of drugs -- that is, you don't necessarily get more if you pay more.