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The value of Medicare managed care plans and their prescription drug benefits

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  • Anne E. Hall
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    Abstract

    I estimate the welfare, both gross and net, provided by the Medicare managed care program in 1999 through 2002. First, I estimate a model of demand for the benefits offered by managed care plans to Medicare beneficiaries. I then use the demand estimates to form estimates of welfare provided by the program. Medicare beneficiaries derived $14.9 billion of gross welfare per year from the Medicare HMO program. Depending on the amount of selection in the program, the Medicare managed care program provided from -$10.3 billion to $35.1 billion of net welfare total over the four-year period. I also estimate the welfare that beneficiaries receive from the prescription drug benefits offered by Medicare HMOs. HMO enrollees in plans offering drugs received on average $13 of consumer surplus per month from the drug benefits in 1999, and this estimate drops to $10 by 2002.

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    File URL: http://www.federalreserve.gov/pubs/feds/2007/200719/200719abs.html
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    Bibliographic Info

    Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2007-19.

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    Date of creation: 2007
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    Handle: RePEc:fip:fedgfe:2007-19

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    Related research

    Keywords: Medicare ; Medical care;

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    1. Abraham, Jean, et al, 2000. "Enter at Your Own Risk: HMO Participation and Enrollment in the Medicare Risk Market," Economic Inquiry, Western Economic Association International, vol. 38(3), pages 385-401, July.
    2. Aviv Nevo, 2003. "Measuring Market Power in the Ready-to-Eat Cereal Industry," Microeconomics 0303006, EconWPA.
    3. Small, Kenneth A & Rosen, Harvey S, 1981. "Applied Welfare Economics with Discrete Choice Models," Econometrica, Econometric Society, vol. 49(1), pages 105-30, January.
    4. Arellano, M, 1987. "Computing Robust Standard Errors for Within-Groups Estimators," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 49(4), pages 431-34, November.
    5. Town, Robert & Liu, Su, 2003. " The Welfare Impact of Medicare HMOs," RAND Journal of Economics, The RAND Corporation, vol. 34(4), pages 719-36, Winter.
    6. Steven T. Berry, 1994. "Estimating Discrete-Choice Models of Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 242-262, Summer.
    7. Mark V. Pauly & Yuhui Zeng, 2003. "Adverse Selection and the Challenges to Stand-Alone Prescription Drug Insurance," NBER Working Papers 9919, National Bureau of Economic Research, Inc.
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