Estimating Regression-Based Medical Care Expenditure Indexes for Medicare Advantage Enrollees

I construct a disease-based medical expenditure index for Medicare Advantage (private plan) enrollees using data from the Medicare Current Beneficiary Survey from 2001 to 2009. I create the indexes by modeling total health-care expenditure as a function of each respondent’s diagnoses. Total medical inflation for this population is found to be 5.7 percent annually. By comparison, medical inflation in the Medicare fee-for-service (FFS) population is 4.5 percent annually. The difference is partly due to differential reporting of drug and nondrug spending in the MCBS for FFS beneficiaries; once this is corrected for, inflation among FFS beneficiaries is 5.0 percent. The remaining difference results from drug spending increasingly more rapidly among Medicare Advantage enrollees. I show that the introduction of Part D accounts for much of, and possibly all the remaining gap in inflation.