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

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  • 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 percent of increased payments in lower premiums and an additional 9 percent 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 percent in the least competitive markets and 74 percent in the most competitive.

Suggested Citation

  • Marika Cabral & Michael Geruso & Neale Mahoney, 2018. "Do Larger Health Insurance Subsidies Benefit Patients or Producers? Evidence from Medicare Advantage," American Economic Review, American Economic Association, vol. 108(8), pages 2048-2087, August.
  • Handle: RePEc:aea:aecrev:v:108:y:2018:i:8:p:2048-87
    Note: DOI: 10.1257/aer.20151362
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    References listed on IDEAS

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    1. 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.
    2. 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.
    3. 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.
    4. 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.
    5. 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.
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    More about this item

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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