Beyond Statistics: The Economic Content of Risk Scores

Liran Einav; Amy Finkelstein; Raymond Kluender; Paul Schrimpf

doi:10.1257/app.20150131

Beyond Statistics: The Economic Content of Risk Scores

American Economic Journal Applied Economics ◽

10.1257/app.20150131 ◽

2016 ◽

Vol 8 (2) ◽

pp. 195-224 ◽

Cited By ~ 8

Author(s):

Liran Einav ◽

Amy Finkelstein ◽

Raymond Kluender ◽

Paul Schrimpf

Keyword(s):

Big Data ◽

Behavioral Responses ◽

Medicare Part D ◽

Risk Scores ◽

Statistical Techniques ◽

Part D ◽

Risk Scoring ◽

Cream Skimming ◽

Strategic Incentives ◽

Using Data

“Big data” and statistical techniques to score potential transactions have transformed insurance and credit markets. In this paper, we observe that these widely-used statistical scores summarize a much richer heterogeneity, and may be endogenous to the context in which they get applied. We demonstrate this point empirically using data from Medicare Part D, showing that risk scores confound underlying health and endogenous spending response to insurance. We then illustrate theoretically that when individuals have heterogeneous behavioral responses to contracts, strategic incentives for cream-skimming can still exist, even in the presence of “perfect” risk scoring under a given contract. (JEL C55, G22, G28, H51, I13)

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Inattention and Switching Costs as Sources of Inertia in Medicare Part D

The American Economic Review ◽

10.1257/aer.20170471 ◽

2021 ◽

Vol 111 (9) ◽

pp. 2737-2781

Author(s):

Florian Heiss ◽

Daniel McFadden ◽

Joachim Winter ◽

Amelie Wuppermann ◽

Bo Zhou

Keyword(s):

Data Model ◽

Switching Costs ◽

Medicare Part D ◽

Medicare Part ◽

Part D ◽

Plan Choice ◽

Using Data ◽

Two Stages ◽

Ability And Willingness ◽

Over Time

Consumers’ health plan choices are highly persistent even though optimal plans change over time. This paper separates two sources of inertia, inattention to plan choice and switching costs. We develop a panel data model with separate attention and choice stages, linked by heterogeneity in acuity, i.e., the ability and willingness to make diligent choices. Using data from Medicare Part D, we find that inattention is an important source of inertia but switching costs also play a role, particularly for low-acuity individuals. Separating the two stages and allowing for heterogeneity is crucial for counterfactual simulations of interventions that reduce inertia. (JEL D12, G22, H51, I13, I18, L65)

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The Response of Drug Expenditure to Nonlinear Contract Design: Evidence from Medicare Part D *

The Quarterly Journal of Economics ◽

10.1093/qje/qjv005 ◽

2015 ◽

Vol 130 (2) ◽

pp. 841-899 ◽

Cited By ~ 56

Author(s):

Liran Einav ◽

Amy Finkelstein ◽

Paul Schrimpf

Keyword(s):

Medicare Part D ◽

Drug Expenditure ◽

Medicare Part ◽

Simple Extension ◽

Drug Spending ◽

Baseline Model ◽

Part D ◽

Insurance Contracts ◽

Donut Hole ◽

Using Data

Abstract We study the demand response to nonlinear price schedules using data on insurance contracts and prescription drug purchases in Medicare Part D. We exploit the kink in individuals’ budgets set created by the famous “donut hole,” where insurance becomes discontinuously much less generous on the margin, to provide descriptive evidence of the drug purchase response to a price increase. We then specify and estimate a simple dynamic model of drug use that allows us to quantify the spending response along the entire nonlinear budget set. We use the model for counterfactual analysis of the increase in spending from “filling” the donut hole, as will be required by 2020 under the Affordable Care Act. In our baseline model, which considers spending decisions within a single year, we estimate that filling the donut hole will increase annual drug spending by about $150, or about 8 percent. About one-quarter of this spending increase reflects anticipatory behavior, coming from beneficiaries whose spending prior to the policy change would leave them short of reaching the donut hole. We also present descriptive evidence of cross-year substitution of spending by individuals who reach the kink, which motivates a simple extension to our baseline model that allows—in a highly stylized way—for individuals to engage in such cross-year substitution. Our estimates from this extension suggest that a large share of the $150 drug spending increase could be attributed to cross-year substitution, and the net increase could be as little as $45 a year.

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The Medium-Term Impact of Medicare Part D on Pharmaceutical Prices

The American Economic Review ◽

10.1257/aer.101.3.387 ◽

2011 ◽

Vol 101 (3) ◽

pp. 387-392 ◽

Cited By ~ 23

Author(s):

Mark G Duggan ◽

Fiona Scott Morton

Keyword(s):

Prescription Drugs ◽

Medicare Part D ◽

Medicare Part ◽

First Year ◽

Medium Term ◽

Part D ◽

The Third ◽

Using Data ◽

Pharmaceutical Prices ◽

Bounce Back

Medicare Part D began coverage of prescription drugs in 2006. Using data from the first year of the program we found that Part D reduced pharmaceutical prices for Medicare recipients, with these effects driven by enrollees previously without drug coverage. In this paper we extend our analysis through 2009, the fourth year of the program, to investigate whether plans continued to extract price concessions in return for favorable formulary placement, or if consumer inertia or other factors caused prices to bounce back after their initial decline. We find price declines persisted through at least the third year of the program.

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