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Measuring the return on spending on the Medicare HMO program

  • Anne E. Hall
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    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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    Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2010-31.

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    Date of creation: 2010
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    Handle: RePEc:fip:fedgfe:2010-31
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    1. Town, Robert & Liu, Su, 2003. " The Welfare Impact of Medicare HMOs," RAND Journal of Economics, The RAND Corporation, vol. 34(4), pages 719-36, Winter.
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