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The Relationship between Medicare Supplemental Insurance and Health-care Spending: Selection Across Multiple Dimensions

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  • David M Zimmer

    () (Grise Hall 426, Department of Economics, Western Kentucky University, Bowling Green, Kentucky, 42101, USA.)

Abstract

This paper investigates Medicare supplemental insurance and health-care spending. The empirical models attempt to determine whether seniors who possess certain traits, particularly health- and risk-related factors, choose supplemental coverage based on expectations of health-care needs. Employer-provided supplemental coverage is considered separately from official “Medigap” policies. Results indicate favorable selection into supplemental insurance based on health status, but no selection based on risk attitudes. The models indicate that Medigap and employer-provided enrollees spend approximately $1,000 and $1,500 more annually, respectively, than those without supplemental coverage. Finally, moral hazard induced by Medicare supplemental coverage appears to add $5.5 billion annually to the federal budget, although this estimate lacks statistical significance.

Suggested Citation

  • David M Zimmer, 2012. "The Relationship between Medicare Supplemental Insurance and Health-care Spending: Selection Across Multiple Dimensions," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 38(1), pages 118-133.
  • Handle: RePEc:pal:easeco:v:38:y:2012:i:1:p:118-133
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