Medicare Part D: are insurers gaming the low income subsidy design?

This paper shows how in Medicare Part D insurers’ gaming of the subsidy paid to low-income enrollees distorts premiums and raises the program cost. Using plan-level data from the !rst !ve years of the program, I !nd multiple instances of pricing strategy distortions for the largest insurers. Instrumental variable estimates indicate that the changes in a concentration index measuring the manipulability of the subsidy can explain a large share of the premium growth observed between 2006 and 2011. Removing this distortion could reduce the cost of the program without worsening consumer welfare.