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.
Tags: prescription drugs