Does Privatized Health Insurance Benefit Patients or Producers? Evidence from Medicare Advantage
University of Texas at Austin; National Bureau of Economic Research (NBER)
University of Texas at Austin; National Bureau of Economic Research (NBER)
University of Chicago Booth School of Business; National Bureau of Economic Research (NBER)
October 8, 2015
Abstract:
A central question in the debate over privatized Medicare is whether increased government payments to private Medicare Advantage (MA) plans generate lower premiums for consumers or higher profits for producers. Using difference-in-differences variation brought about by a sharp legislative change, we find that MA insurers pass through 44% of increased payments in lower premiums and an additional 8% in more generous benefits. We show that advantageous selection into MA cannot explain this incomplete pass-through. Instead, our evidence suggests that market power is important, with premium pass-through rates of 13% in the least competitive markets and 74% in the most competitive.
Number of Pages in PDF File: 79
Keywords: Health insurance, Medicare Advantage, incidence, pass-through
JEL Classification: H22, D4, I11, I13, L1
