Medicare Beneficiary Decision Making about Health Insurance: Implications for a Voucher System

A two-phase study involving focus group interviews and a survey of 2,016 Medicare beneficiaries was conducted to examine beneficiary decision making about health insurance under a hypothetical Medicare voucher program. Some of the major findings were that: (1) beneficiaries lack important information about Medicare and health insurance in general; (2) plans with physician restrictions, no restrictions on hospitals, and benefits for custodial long-term care at home or in nursing homes are most preferred when prices are roughly equal to actuarial costs; (3) plan features often interact rather than combine additively to affect choices; (4) price sensitivity is small in comparison with sensitivity to other plan features; (5) price sensitivity is particularly small for plans with custodial long-term care benefits; (6) Medicare would not experience substantial selection bias in a voluntary system containing a wide range of plans preferred by beneficiaries; (7) physician-restricted plans would experience favorable selection; (8) plans with long-term custodial care benefits would experience some adverse selection which might be handled by modest price adjustments in view of the relatively low price elasticity of preferences.