Keith Marzilli Ericson

Associate Professor of Markets, Public Policy, and Law at Questrom School of Business, Boston University

Research-Feature

Invest-then-Harvest Pricing in Medicare Part D

Evolution of Cohort Premiums over Time. Average monthly premiums for basic plans, by plan cohort and year. Each line traces gives the annual premium over time of a given cohort.

Individuals face switching frictions in many products, and insurance exchanges are no exception. In a paper published in the American Economic Journal: Economic Policy, I show that initial defaults have lasting effects in the Medicare Part D prescription drug insurance exchange. Since firms cannot commit to future prices, they should respond to inertia by raising prices on existing enrollees, while introducing cheaper alternative plans. I show that the market displays this pattern: older plans in this market are about 10% more expensive than comparable newly introduced plans.

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