Suit the action to the word, the word to the action: Hypothetical choices and real decisions in Medicare Part D

In recent years, consumer choice has become an important element of
public policy. One reason is that consumers differ in their tastes
and needs, which they can express most easily through their own
choices. Elements that strengthen consumer choice feature
prominently in the design of public insurance markets, for instance
in the United States in the recent introduction of prescription
drug coverage for older individuals via Medicare Part D. For policy
makers who design such a market, an important practical question in
the design phase of such a new program is how to deduce enrollment
and plan selection preferences prior to its introduction. In this
paper, we investigate whether hypothetical choice experiments can
serve as a tool in this process. We combine data from hypothetical
and real plan choices, elicited around the time of the introduction
of Medicare Part D. We first analyze how well the hypothetical
choice data predict willingness to pay and market shares at the
aggregate level. We then analyze predictions at the individual
level, in particular how insurance demand varies with observable
characteristics. We also explore whether the extent of adverse
selection can be predicted using hypothetical choice data alone.