optimal subsidy schedule that features heterogeneity in consumer preferences and inertia, and firms with heterogeneous costs … that can set prices and product characteristics in response to changes in the subsidy. We apply it to the Medicare …

and benefit package. Medicare provides a subsidy, based on a "benchmark payment rate", for each Medicare beneficiary a … plan enrolls. We investigate how this subsidy, the primary policy lever in the market, affects the equilibrium premiums and … subsidy dollars and can account for the empirical results. More specifically, institutional features make it difficult for …