Participation and Crowd-Out in a Medicare Drug Benefit: Simulation Estimates

This article provides information on likely participation in the Medicare prescription drug plan and expected crowd-out. We use a microsimulation model based on data from the MCBS to estimate the costs and benefits of a Medicare drug plan, including the benefits from reductions in risk. The simulations are repeated using different combinations of benefits and subsidies. In addition, the simulations explore the effects of different behavioral parameters for moral hazard (the extent to which participants increase drug spending in response to reduced costs) and risk aversion (the extent to which participants would be willing to pay to avoid risk) to identify the impact of these factors on participation and crowd-out.