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Who Benefits when the Government Pays More? Pass-Through in the Medicare Advantage Program

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  • Mark Duggan
  • Amanda Starc
  • Boris Vabson

Abstract

Governments contract with private firms to provide a wide range of services. While a large body of previous work has estimated the effects of that contracting, surprisingly little has investigated how those effects vary with the generosity of the contract. In this paper we examine this issue in the Medicare Advantage (MA) program, through which the federal government contracts with private insurers to coordinate and finance health care for more than 15 million Medicare recipients. To do this, we exploit a substantial policy-induced increase in MA reimbursement in metropolitan areas with a population of 250 thousand or more relative to MSAs just below this threshold. Our results demonstrate that the additional reimbursement leads more private firms to enter this market and to an increase in the share of Medicare recipients enrolled in MA plans. Our findings also reveal that only about one-fifth of the additional reimbursement is passed through to consumers in the form of better coverage. A somewhat larger share accrues to private insurers in the form of higher profits and we find suggestive evidence of a large impact on advertising expenditures. Our results have implications for a key feature of the Affordable Care Act that will reduce reimbursement to MA plans by $156 billion from 2013 to 2022.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19989.

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Date of creation: Mar 2014
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Handle: RePEc:nbr:nberwo:19989

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References

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  1. Robert Town & Su Liu, 2003. "The Welfare Impact of Medicare HMOs," Mathematica Policy Research Reports, Mathematica Policy Research 3849, Mathematica Policy Research.
  2. Amy Finkelstein & Sarah Taubman & Bill Wright & Mira Bernstein & Jonathan Gruber & Joseph P. Newhouse & Heidi Allen & Katherine Baicker, 2012. "The Oregon Health Insurance Experiment: Evidence from the First Year," The Quarterly Journal of Economics, Oxford University Press, vol. 127(3), pages 1057-1106.
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  6. Cecilia Elena Rouse, 1998. "Private School Vouchers And Student Achievement: An Evaluation Of The Milwaukee Parental Choice Program," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 113(2), pages 553-602, May.
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  8. Liran Einav & Amy Finkelstein & Paul Schrimpf, 2013. "The Response of Drug Expenditures to Non-Linear Contract Design: Evidence from Medicare Part D," NBER Working Papers 19393, National Bureau of Economic Research, Inc.
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Cited by:
  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.

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