by Gal Wettstein, Harvard University
This project uses Health and Retirement Study (HRS) data around the time of introduction of Medicare Part D prescription drug insurance for the elderly in order to estimate crowd-out of private prescription drug insurance, and employer-provided drug benefits’ retirement-lock effects. I will use individuals between ages 55-64, who are not eligible for the program, as a control group relative to individuals ages 65-75, who are eligible. Through comparing outcomes before and after 2006, when Medicare Part D went into effect, I will take a differences-indifferences approach to estimation. By exploiting unique questions eliciting risk aversion in the HRS, I will estimate differential crowd-out effects by different risk aversion values. Based upon these estimates and differential use of employer-provided drug insurance among low- and high-risk aversion individuals, I will estimate the magnitude of retirement-lock due to employer-provision of prescription drug benefits. These estimates will also account for risk-aversion heterogeneity in the impact of a public insurance option on retirement decisions. Integrating these empirical results with a model of welfare from public insurance in the presence of a pre-existing private insurance market, I will estimate the welfare implications of Medicare Part D.