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Supply-Side Responses to Public Quality Ratings: Evidence from Medicare Advantage

Author

Listed:
  • Ian M. McCarthy

    (Department of Economics, Emory University)

  • Michael Darden

    (Department of Economics, Tulane University)

Abstract

Since 2009, the Centers for Medicare and Medicaid Services (CMS) has distributed quality star ratings for Medicare Advantage (MA) contracts to better inform Medicare-eligible individuals of MA plan quality. This paper examines the extent to which the quality star rating scheme affected insurer behavior in the MA market. We identify the causal effect of 2009 star ratings on 2010 MA premiums using a regression discontinuity design that exploits plausibly random variation around threshold values underlying the star rating calculations. We find that contracts with higher star ratings in 2009 significantly increased their average 2010 monthly premiums relative to contracts just below the respective threshold values, with increases of more than $26 per month among 3.5- and 4-star contracts. We present additional evidence that the estimated premium increases in 2010 are not purely the result of demand shifts in the prior year. Furthermore, the 2009 star ratings have a significant effect on plan mix, where 3-star contracts disproportionately dropped their $0 premium plans while 2.5-, 3.5-, and 4-star contracts disproportionately expanded plans into new markets, particularly plans with positive monthly premiums. Broadly, our analysis reveals a relatively large supply-side response to published quality ratings, suggesting some level of caution as policy makers extend quality rating systems into new health-care markets.

Suggested Citation

  • Ian M. McCarthy & Michael Darden, 2017. "Supply-Side Responses to Public Quality Ratings: Evidence from Medicare Advantage," American Journal of Health Economics, University of Chicago Press, vol. 3(2), pages 140-164, Spring.
  • Handle: RePEc:ucp:amjhec:v:3:y:2017:i:2:p:140-164
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    Cited by:

    1. Bingxiao Wu & Jeah Jung & Hyunjee Kim & Daniel Polsky, 2019. "Entry regulation and the effect of public reporting: Evidence from Home Health Compare," Health Economics, John Wiley & Sons, Ltd., vol. 28(4), pages 492-516, April.
    2. Michele Fioretti & Hongming Wang, 2019. "Subsidizing Inequality: Performance Pay and Risk Selection in Medicare," SciencePo Working papers Main hal-03393070, HAL.
    3. repec:hal:spmain:info:hdl:2441/4bg68glinb8r8roh0akvprtu9u is not listed on IDEAS
    4. repec:hal:wpspec:info:hdl:2441/4bg68glinb8r8roh0akvprtu9u is not listed on IDEAS
    5. repec:spo:wpmain:info:hdl:2441/4bg68glinb8r8roh0akvprtu9u is not listed on IDEAS
    6. McCarthy, Ian M., 2018. "Quality disclosure and the timing of insurers’ adjustments: Evidence from medicare advantage," Journal of Health Economics, Elsevier, vol. 61(C), pages 13-26.
    7. repec:spo:wpecon:info:hdl:2441/4bg68glinb8r8roh0akvprtu9u is not listed on IDEAS
    8. Jinyang Chen & Chaoqun Wang, 2023. "“The reputation premium”: does hospital ranking improvement lead to a higher healthcare spending?," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 24(5), pages 817-830, July.

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    More about this item

    Keywords

    quality information; Medicare Advantage; health insurance; insurance premiums;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets

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