The Impact of Imperfect Information on the Health Insurance Choice, Health Outcomes, and Medical Expenditures of the Elderly Public Deposited

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  • March 20, 2019
  • Singh, Pragya
    • Affiliation: College of Arts and Sciences, Department of Economics
  • Traditional choice models assume that individuals have full information about the set of available products and their characteristics. However, recent empirical studies illustrate the importance of limited information about product availability and characteristics in consumer decision making.The market for health insurance is an important market in which the inherent product complexity frequently leads to incomplete consideration or attention to plan alternatives and their features. This research investigates the dynamic impact of limited information about the insurance alternatives available through Medicare on the expenditures and health outcomes of the elderly, using the Medicare Current Beneficiary Survey (MCBS) dataset, which reports individuals’ knowledge about insurance plan characteristics as well as their choice of plan. Simulations from parameter estimates obtained through joint estimation of demand equations show that more informed individuals are more likely to supplement traditional fee-for-service Medicare with Prescription Drug coverage and other supplemental insurance policies and, in spite of consuming more medical care, realize lower out-of-pocket expenditures. Increasing the value of the information measure used in this study by one standard deviation, produces a 30 dollar decrease in out-of-pocket expenditures per beneficiary. However, the total medical care expenditure for each Medicare beneficiary increases by 432 dollars. This net increase in spending of 402 dollars per beneficiary has to be weighed against a positive impact on health status of elderly persons with functional limitations. The probability of such individuals transitioning into a ‘no functional limitation’ state increases by 2 per cent with the increase in information. Furthermore, with limited resources available to expand insurance literacy, policymakers should target the elderly in lower health status for they realize lower out-of-pocket expenditures as well as an improvement in their health outcomes.
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  • In Copyright
  • Gilleskie, Donna B.
  • Tauchen, Helen
  • Pires, Tiago
  • Stearns, Sally
  • McManus, Brian
  • Doctor of Philosophy
Degree granting institution
  • University of North Carolina at Chapel Hill Graduate School
Graduation year
  • 2016

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