Risk attitudes and Medicare Part D enrollment decisions

The new Medicare Part D program provides prescription drug coverage
for older Americans through highly subsidized and tightly regulated
plans offered by private insurance firms. For most eligible
individuals without coverage from other sources, obtaining Part D
coverage would be rational, but it requires active enrollment and
plan choice decisions. We investigate if non-enrollment in Medicare
Part D can partly be explained by risk aversion. Data are taken
from a national online survey conducted just after the introduction
Part D. The survey included a context-free and a context-related
hypothetical lottery to measure an individual’s attitude towards
risk. Respondents who are risk tolerant according to these measures
were significantly less likely to enroll in Part D. We also
illustrate that hypothetical choice questions designed to elicit
risk attitudes are subject to reference-point effects. Even minor
differences in the priming of respondents can result in potentially
misleading conclusions about the role of risk aversion in the
insurance decisions.