Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/222118 
Year of Publication: 
2019
Series/Report no.: 
Discussion Paper No. 221
Publisher: 
Ludwig-Maximilians-Universität München und Humboldt-Universität zu Berlin, Collaborative Research Center Transregio 190 - Rationality and Competition, München und Berlin
Abstract: 
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.
Subjects: 
Medicare
prescription drugs
health insurance demand
dynamic discrete choice
JEL: 
I13
D12
J14
C25
Document Type: 
Working Paper

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