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Sharing the burden of subsidization: Evidence on pass-through from a subsidy revision in Medicare Part D

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  • Carey, Colleen

Abstract

In many federally-subsidized insurance markets, insurers are subsidized on the basis of enrollee characteristics; in principle, subsidies that are “risk adjusted” in this way compensate insurers for ex ante differences in expected cost. Between 2010 and 2011, the subsidies in Medicare Part D were revised, sharply changing the subsidy for diagnoses and demographic characteristics. This paper uses the response of insurers to the subsidy update to estimate pass-through of government subsidies to two insurer choice variables: premiums and out-of-pocket costs. We find that diagnostic subsidies are passed-through at a rate of 40% to the out-of-pocket costs for relevant drugs. Premiums are not responsive to overall subsidies, but do reflect changes in the demographic component of subsidies.

Suggested Citation

  • Carey, Colleen, 2021. "Sharing the burden of subsidization: Evidence on pass-through from a subsidy revision in Medicare Part D," Journal of Public Economics, Elsevier, vol. 198(C).
    • Handle: RePEc:eee:pubeco:v:198:y:2021:i:c:s0047272721000372
    DOI: 10.1016/j.jpubeco.2021.104401
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    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health

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