Economists have long chronicled the聽— the聽ability to attract shoppers with聽low prices and then sock them with聽increases once they’ve stopped聽paying attention. Think car insurance or bank fees. Consumers often聽stay put even when they聽notice the higher bills, deciding that the hassles of switching represent an even greater cost.
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Boston University economist聽Keith M. Marzilli Ericson finds the same thing going on in聽Medicare prescription drug plans. Stick around too long in the same Medicare Part D plan and your premiums will be聽about 10 percent higher than if you switch to a new offering,聽says Ericson’s at the National Bureau of聽Economic Research. (Subscription required, but there are many exceptions, including for those from a聽.gov domain.聽Anybody聽can read the abstract at the link.)
That’s not聽huge聽money — $50 a year. But it聽can add up over time. And聽Ericson’s聽conclusions may be relevant to policymakers as well as Medicare members. If you’re frequently聽changing prescription plans to get a better deal, your access to medication might be disrupted. (Consumers may not take that into account before switching.)
What’s more, buyers on the Affordable Care Act’s health insurance exchanges, where the dollars聽are a lot higher and which open for business聽in聽2014,聽may see the same price pattern, depending on how states design their systems.
“We might expect聽to see very competitive markets in the early years as companies are coming in to get enrollment, and price increases in the later years,” Ericson said in an interview.
He looked at all of Medicare Part D’s enrollment and price data from 2006, when the program for seniors took effect, through 2010.
Part D聽plans differ聽from cable TV or聽checking accounts in one聽respect.聽Government rules prevent聽the companies聽from cutting prices for new聽members while raising them聽for established customers. So instead, insurers聽often offer new,聽similar plans in the same markets (they can’t be identical to a company’s existing plans, under Medicare rules) or expand into new regions — often聽with lower聽prices.
After two or three years of operation, the older plans generally cost more than the new ones, the data showed.
One lesson for consumers, Ericson said, “is to think about the price you’re going to pay over the lifetime of a product rather than the price you’re going to pay today.” But from a policy point of view,聽he said, customers churning for the best deal聽represents “a cost to the consumers” in time and effort. “It’s a cost to the system” because of administrative costs. And “it lowers the continuity of care.”
