More information about seniors’ prescription drug choices is coming in. It’s not looking good.

Two MIT economists recently published the most comprehensive study to date on seniors’ choices under Medicare Part D, the government’s massive prescription drug program passed in by Congress in 2003. Looking at nearly half a million seniors participating in Part D, Jason Abaluck and Jonathan Gruber tracked both the choice of plan and prescriptions filled, and then compared the two to see if those individuals could have selected a different available drug benefit plan and saved money. They found that 70 percent of seniors are not choosing the most efficient plans, meaning there were unselected alternatives that offered better risk protection for less money. If these seniors opted for the best plan, Abaluck and Gruber estimate they could have saved about 27 percent of their total costs.

Instead, it seems that seniors are making three major errors in their plan selection:

1) Seniors weight plan premiums far more than expected out-of-pocket costs.

2) Seniors choose to pay for extras like donut hole coverage and low deductibles that they don’t need. They also prefer plans that cover more drugs, but they lack the foresight to decide which plans cover drugs they might need in the future.

3) Seniors do not appreciate the risk-reducing aspects of plans themselves. For instance, they aren’t willing to pay more for plans with lower variance in expected spending, which could save them money if there is a spike in prescription drug costs on year.

The bottom line is that seniors could have saved quite a bit of money without sacrificing many benefits if they had chosen one of the lowest cost options in their state. Don’t be turned off just because a plan is inexpensive. It may fit you just fine.

A gated version of the paper is here.

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3 Responses to “More information about seniors’ prescription drug choices is coming in. It’s not looking good.”

  1. Gray, Germany Says:

    Don’t want to subscribe just to read that single study, but the points you provide here beg for couterarguments:

    1) The problkem lies in the word “expected”. Senior neither have the informations at hand nor the tools to properly conduct a risk evaluation. So, they can’t know what to expect. And insurance companies don’t want their customers to make the most rational decisions, but to nmake choices that maximize profits for the company. The informations they provide to the customers will reflect that desire. How to overcome this systemic problem?

    2) Seniors, probably even more than humans of different ages, don’t make purely rational decisions and especially put a big emphasis on safety. They simply don’t want any nasty surprises in their retirement! This has been confirmed by countless studies. Expecting them to deliberately accept a donut hole coverage in order to safe some bucks is unrealistc. And their decision isn’t even so irrational: How do you weigh the value of nerves safed by having a plan with a donut hole risk?
    As for their choice of opting for including too many drugs, they don’t have a crystal ball and they can’t evaluate the risk (see point 1), so its only natural they want to err on the safe side.

    3) Same argument as for 1. You can’t expect senior to invest lots of time and efforts in becoming their own risk mangers. Most of them lack the education to do so anyhow. And even if they tried, they wouldn’t be able to overcome the systemic information deficit. Instead of pointing out that their choice in irrational when evaluated by a specialist, it would be much more helpful to come upwith ideas on making the right choice easier for them.

    The bottom line is that the overwhelming majority of seniors aren’t MIT profs. Expecting them to be able to do the complicated calculations to make a rational choice is ridiculous. The obvious disadvantage of the customers faced with too many choices whose value they can’t reasonably access shows that the ideologically based emphasis on personal responsibility is not only overburdening customers when it comes to such complicated matters, it’s also not at all what the customers, the senior in this case, want.

    The solution can only be to let experts in the field create a small number of reasonable plans for this group, and to present those choices in a way that the average customer can easily make the right decision. Since this is not what the industry wants, because it would mean more competition and less profits, this requires an official regulating office that will create mandatory standard plans and review if the insurers’ offers comply with those standards. Only way to make the system work for the average customer, imho.

  2. Gray, Germany Says:

    Hmm, some other points. Firstly, pls excuse my bad English. It isn’t my native language. Secondly, “the solution” in the last paragraph is based on the premise that it’s desirable to offer different choices to the customer. This premise isn’t compelling, of course. Actually, I think that everybody should have a basic plan that assures access to health care without any financial considerations hampering that access. Choices should be limited to additional insurances covering ammenities like single bedroom in hospitals, better quality dental replacements and such. By a pure coincidence, this is actually a description of the German health care system (:D). It sure isn’t perfect, but at least it gets the important points right.

    And lastly, I’m somewhat disapointed about this blog story. Excuse me pls, but where is the “nudge” aspect in it, that allegedly is the main point of this blog???

  3. Ashley Says:

    Nicely said about the major mistakes done by seniors while choosing in their prescription plans.. I agree with the second point.. Most probably seniors got confused on seeing many plans. They have a detailed study on prescription plans which will help them in future. I like to show this article to my dad what mistake he is doing now..

    Thanks for sharing..

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