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Do Larger Health Insurance Subsidies Benefit Patients or Producers? Evidence from Medicare Advantage

Author

Listed:
  • Marika Cabral
  • Michael Geruso
  • Neale Mahoney

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 45% of increased payments in lower premiums and an additional 9% 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.

Suggested Citation

  • Marika Cabral & Michael Geruso & Neale Mahoney, 2014. "Do Larger Health Insurance Subsidies Benefit Patients or Producers? Evidence from Medicare Advantage," NBER Working Papers 20470, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:20470
    Note: AG EH IO PE
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    References listed on IDEAS

    as
    1. Karen Stockley & Thomas McGuire & Christopher Afendulis & Michael E. Chernew, 2014. "Premium Transparency in the Medicare Advantage Market: Implications for Premiums, Benefits, and Efficiency," NBER Working Papers 20208, National Bureau of Economic Research, Inc.
    2. Kate Ho & Joseph Hogan & Fiona Scott Morton, 2017. "The impact of consumer inattention on insurer pricing in the Medicare Part D program," RAND Journal of Economics, RAND Corporation, vol. 48(4), pages 877-905, December.
    3. repec:mpr:mprres:3171 is not listed on IDEAS
    4. E. Glen Weyl & Michal Fabinger, 2013. "Pass-Through as an Economic Tool: Principles of Incidence under Imperfect Competition," Journal of Political Economy, University of Chicago Press, vol. 121(3), pages 528-583.
    5. Liran Einav & Amy Finkelstein & Mark R. Cullen, 2010. "Estimating Welfare in Insurance Markets Using Variation in Prices," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 125(3), pages 877-921.
    6. Duggan, Mark & Starc, Amanda & Vabson, Boris, 2016. "Who benefits when the government pays more? Pass-through in the Medicare Advantage program," Journal of Public Economics, Elsevier, vol. 141(C), pages 50-67.
    7. Dunn, Abe, 2010. "The value of coverage in the medicare advantage insurance market," Journal of Health Economics, Elsevier, vol. 29(6), pages 839-855, December.
    8. Leemore Dafny & Mark Duggan & Subramaniam Ramanarayanan, 2012. "Paying a Premium on Your Premium? Consolidation in the US Health Insurance Industry," American Economic Review, American Economic Association, vol. 102(2), pages 1161-1185, April.
    9. Jeffrey Clemens & Joshua D. Gottlieb, 2017. "In the Shadow of a Giant: Medicare’s Influence on Private Physician Payments," Journal of Political Economy, University of Chicago Press, vol. 125(1), pages 1-39.
    10. Town, Robert & Liu, Su, 2003. "The Welfare Impact of Medicare HMOs," RAND Journal of Economics, The RAND Corporation, vol. 34(4), pages 719-736, Winter.
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    More about this item

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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