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Measuring the return on spending on the Medicare HMO program


  • Anne E. Hall


I estimate the welfare provided by and net costs of the Medicare HMO program in 1999-2002. I measure welfare with a nested logit model of demand for Medicare HMO plans using detailed data on plan benefits. From this, I derive estimates of consumer surplus and find that total welfare provided by the program over the four-year period is about $61 billion (2000 $). I also use data on favorable selection enjoyed by Medicare HMOs to estimate net costs, which total about $21 billion (2000 $). Net welfare therefore totals nearly $40 billion and the return on spending is about 186%.

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  • Anne E. Hall, 2010. "Measuring the return on spending on the Medicare HMO program," Finance and Economics Discussion Series 2010-31, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgfe:2010-31

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    References listed on IDEAS

    1. 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.
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