Anticipatory Behavior in Response to Medicare Part D's Coverage Gap

Abstract

Under the standard Medicare Part D benefit structure, copayments for medications change discontinuously at certain levels of accumulative drug spending. Beneficiaries pay 25% of the cost of medications in the initial phase, 100% in the coverage gap, and 5% in the catastrophic phase. We examine whether individuals anticipate these copayment changes and adjust their consumption in advance. We use variation in birth-months of beneficiaries who enroll in Part D plans when they first turn 65. Birth-months generate exogenous variation in the end-of-year price because those who enroll earlier in the year are more likely to reach the coverage gap than those who enroll later. We study the impact of v..