Measuring the Return on Government Spending on the Medicare Managed Care Program
AbstractI estimate the welfare provided to beneficiaries by the Medicare managed care program, and its net costs, for the years 1999-2002. I measure beneficiary welfare with a nested logit model of demand for Medicare HMO plans using detailed data on plan benefits. From this, I find that total beneficiary welfare provided by the program over the four-year period is about $61 billion (2000 $). I also use data on and estimates of the favorable selection enjoyed by Medicare HMOs from the research literature to estimate net costs of the program, which range from $21 billion to $31 billion (2000 $). Estimated net beneficiary welfare of the program therefore ranges from $30 billion to $40 billion and the estimated return on government spending ranges from 96 percent to 186 percent. Even though managed care plans are overpaid by Medicare, the program still enjoys a substantial return due to the popularity of its offerings.
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Bibliographic InfoArticle provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.
Volume (Year): 11 (2011)
Issue (Month): 2 (January)
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Web page: http://www.degruyter.com
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