Researcher: Older Medicare drug plans cost more

Insurers in the Medicare Part D prescription drug plan market may be counting on the idea that enrollees who stick with the same plan will put up with higher prices.

A researcher — Keith Marzilli Ericson of Boston University — has come to that conclusion in a paper on the Medicare drug plan market. The National Bureau of Economic Research has posted the paper behind a paywall on its website. 

Ericson suggests in the paper that the way the Part D market works could give observers ideas about how the government health insurance exchanges, or Web-based insurance supermarkets that could be created by the Patient Protection and Affordable Care Act (PPACA), would work.

The Part D program has already created a kind of competitive, government-run exchange for private insurers that want to sell drug coverage to Medicare enrollees, Ericson says.

Medicare Part D program rules prohibit insurers from offering introductory discounts to gain market share, but Ericson says an insurer still has an incentive to find ways to use a subtle “invest then harvest” marketing strategy: setting initial rates low to attract first-time enrollees, then raising prices substantially once the insurer has a base of enrollees who are “stuck in place.”