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Quality Ratings and Premiums in the Medicare Advantage Market

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  • Ian M. McCarthy
  • Michael Darden

Abstract

We examine the response of Medicare Advantage contracts to published quality ratings. We identify the effect of star ratings on premiums using a regression discontinuity design that exploits plausibly random variation around rating thresholds. We find that 3, 3.5, and 4-star contracts in 2009 significantly increased their 2010 monthly premiums by $20 or more relative to contracts just below the respective threshold values. High quality contracts also disproportionately dropped $0 premium plans or expanded their offering of positive premium plans. Welfare results suggest that the estimated premium increases reduced consumer welfare by over $250 million among the affected beneficiaries.

Suggested Citation

  • Ian M. McCarthy & Michael Darden, 2015. "Quality Ratings and Premiums in the Medicare Advantage Market," Emory Economics 1501, Department of Economics, Emory University (Atlanta).
  • Handle: RePEc:emo:wp2003:1501
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