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