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THE WELFARE IMPACT OF REDUCING CHOICE IN MEDICARE PART D: A COMPARISON OF TWO REGULATION STRATEGIES *
Author(s) -
Lucarelli Claudio,
Prince Jeffrey,
Simon Kosali
Publication year - 2012
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/j.1468-2354.2012.00715.x
Subject(s) - welfare , dimension (graph theory) , economics , ex ante , competition (biology) , relevance (law) , microeconomics , deadweight loss , general equilibrium theory , public economics , macroeconomics , mathematics , ecology , biology , political science , pure mathematics , law , market economy
Motivated by widely publicized concerns that there are “too many” plans, we structurally estimate (and validate) an equilibrium model of the Medicare Part D market to study the welfare impacts of two feasible, similar‐sized approaches for reducing choice. One reduces the maximum number of firm offerings regionally; the other removes plans providing donut hole coverage—consumers’ most valued dimension. We find welfare losses are far smaller when coupled with elimination of a dimension of differentiation. We illustrate our findings’ relevance under current health care reforms, and consider the merits of instead imposing ex ante competition for entry.