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The Welfare Impact of Medicare HMOs

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  • Town, Robert
  • Liu, Su

Abstract

We estimate the welfare associated with the Medicare HMO program, now known as Medicare+Choice (M+C). We find that the creation of the M+C program resulted in approximately $15.6 billion in consumer surplus and $52 billion in profits from 1993 to 2000 (in 2000 dollars). This program most likely generated significant net social welfare. However, we find that consumer surplus is geographically unevenly distributed. Prescription drug coverage accounts for approximately 45% of the estimated consumer surplus for 2000. Consumer surplus increases in the number of plans in a county, and most of the increase in welfare is due to increased premium competition. Copyright 2003 by the RAND Corporation.

Suggested Citation

  • 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.
  • Handle: RePEc:rje:randje:v:34:y:2003:i:4:p:719-36
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    1. Trajtenberg, Manuel, 1989. "The Welfare Analysis of Product Innovations, with an Application to Computed Tomography Scanners," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 444-479, April.
    2. Austan Goolsbee & Amil Petrin, 2001. "The Consumer Gains from Direct Broadcast Satellites and the Competition with Cable Television," NBER Working Papers 8317, National Bureau of Economic Research, Inc.
    3. John Cawley & Michael Chernew & Catherine McLaughlin, 2005. "HMO Participation in Medicare+Choice," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 14(3), pages 543-574, September.
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