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Measuring the Return on Government Spending on the Medicare Managed Care Program

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  • Hall Anne E

    (Bureau of Economic Analysis)

Abstract

I 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.

Suggested Citation

  • Hall Anne E, 2011. "Measuring the Return on Government Spending on the Medicare Managed Care Program," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(2), pages 1-43, January.
  • Handle: RePEc:bpj:bejeap:v:11:y:2011:i:2:n:7
    DOI: 10.2202/1935-1682.2744
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    References listed on IDEAS

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    1. 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.
    2. Jason Brown & Mark Duggan & Ilyana Kuziemko & William Woolston, 2011. "How does Risk-selection Respond to Risk-adjustment? Evidence from the Medicare Advantage Program," Discussion Papers 10-024, Stanford Institute for Economic Policy Research.
    3. Nevo, Aviv, 2001. "Measuring Market Power in the Ready-to-Eat Cereal Industry," Econometrica, Econometric Society, vol. 69(2), pages 307-342, March.
    4. 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.
    5. 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.
    6. repec:mpr:mprres:3849 is not listed on IDEAS
    7. 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 431-434, November.
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    Cited by:

    1. Jason Brown & Mark Duggan & Ilyana Kuziemko & William Woolston, 2014. "How Does Risk Selection Respond to Risk Adjustment? New Evidence from the Medicare Advantage Program," American Economic Review, American Economic Association, vol. 104(10), pages 3335-3364, October.
    2. Ari D. Gerstle & Helen C. Knudsen & June K. Lee & W. Robert Majure & Dean V. Williamson, 2017. "Economics at the Antitrust Division 2016–2017: Healthcare, Nuclear Waste, and Agriculture," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 51(4), pages 515-528, December.
    3. Hall Anne E., 2016. "Estimating Regression-Based Medical Care Expenditure Indexes for Medicare Advantage Enrollees," Forum for Health Economics & Policy, De Gruyter, vol. 19(2), pages 261-297, December.

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