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Who Benefits when the Government Pays More? Pass-Through in the Medicare Advantage Program

Author

Listed:
  • Mark Duggan
  • Amanda Starc
  • Boris Vabson

Abstract

Governments contract with private firms to provide a wide range of services. While a large body of previous work has estimated the effects of that contracting, surprisingly little has investigated how those effects vary with the generosity of the contract. In this paper we examine this issue in the Medicare Advantage (MA) program, through which the federal government contracts with private insurers to coordinate and finance health care for more than 15 million Medicare recipients. To do this, we exploit a substantial policy-induced increase in MA reimbursement in metropolitan areas with a population of 250 thousand or more relative to MSAs just below this threshold. Our results demonstrate that the additional reimbursement leads more private firms to enter this market and to an increase in the share of Medicare recipients enrolled in MA plans. Our findings also reveal that only about one-fifth of the additional reimbursement is passed through to consumers in the form of better coverage. A somewhat larger share accrues to private insurers in the form of higher profits and we find suggestive evidence of a large impact on advertising expenditures. Our results have implications for a key feature of the Affordable Care Act that will reduce reimbursement to MA plans by $156 billion from 2013 to 2022.

Suggested Citation

  • Mark Duggan & Amanda Starc & Boris Vabson, 2014. "Who Benefits when the Government Pays More? Pass-Through in the Medicare Advantage Program," NBER Working Papers 19989, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:19989
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    Cited by:

    1. Jason Brown & Mark Duggan & Ilyana Kuziemko & William Woolston, 2014. "How Does Risk Selection Respond to Risk Adjustment? New Evidence from the Medicare Advantage Program," American Economic Review, American Economic Association, vol. 104(10), pages 3335-3364, October.
    2. Kurt Lavetti & Kosali Simon, 2016. "Strategic Formulary Design in Medicare Part D Plans," NBER Working Papers 22338, National Bureau of Economic Research, Inc.
    3. Sharat Ganapati & Joseph S. Shapiro & Reed Walker, 2016. "Energy Prices, Pass-Through, and Incidence in U.S. Manufacturing," Working Papers 16-27, Center for Economic Studies, U.S. Census Bureau.
    4. Karen Stockley & Thomas McGuire & Christopher Afendulis & Michael E. Chernew, 2014. "Premium Transparency in the Medicare Advantage Market: Implications for Premiums, Benefits, and Efficiency," NBER Working Papers 20208, National Bureau of Economic Research, Inc.
    5. Pilny, Adam & Wübker, Ansgar & Ziebarth, Nicolas R., 2017. "Introducing risk adjustment and free health plan choice in employer-based health insurance: Evidence from Germany," Journal of Health Economics, Elsevier, vol. 56(C), pages 330-351.
    6. Sharat Ganapati & Joseph S. Shapiro & Reed Walker, 2016. "The Incidence of Carbon Taxes in U.S. Manufacturing: Lessons from Energy Cost Pass-Through," NBER Working Papers 22281, National Bureau of Economic Research, Inc.
    7. Amanda Starc & Robert J. Town, 2015. "Externalities and Benefit Design in Health Insurance," NBER Working Papers 21783, National Bureau of Economic Research, Inc.
    8. Marika Cabral & Michael Geruso & Neale Mahoney, 2014. "Do Larger Health Insurance Subsidies Benefit Patients or Producers? Evidence from Medicare Advantage," NBER Working Papers 20470, National Bureau of Economic Research, Inc.
    9. Leemore Dafny & Jonathan Gruber & Christopher Ody, 2015. "More Insurers Lower Premiums: Evidence from Initial Pricing in the Health Insurance Marketplaces," American Journal of Health Economics, MIT Press, vol. 1(1), pages 53-81, Winter.
    10. Francesco Decarolis & Andrea Guglielmo & Calvin Luscombe, 2017. "Open Enrollment Periods and Plan Choices," NBER Working Papers 24156, National Bureau of Economic Research, Inc.
    11. David Dranove & Christopher Ody & Amanda Starc, 2017. "A Dose of Managed Care: Controlling Drug Spending in Medicaid," NBER Working Papers 23956, National Bureau of Economic Research, Inc.
    12. Katherine Baicker & Jacob A. Robbins, 2015. "Medicare Payments and System-Level Health-Care Use: The Spillover Effects of Medicare Managed Care," American Journal of Health Economics, MIT Press, vol. 1(4), pages 399-431, Fall.
    13. Jay Bhattacharya & Vilsa Curto & Liran Einav & Jonathan Levin, 2014. "Can Health Insurance Competition Work? Evidence from Medicare Advantage," Discussion Papers 14-015, Stanford Institute for Economic Policy Research.
    14. repec:ura:ecregj:v:1:y:2018:i:1:p:29-42 is not listed on IDEAS
    15. Mark Duggan & Jonathan Gruber & Boris Vabson, 2015. "The Efficiency Consequences of Health Care Privatization: Evidence from Medicare Advantage Exits," NBER Working Papers 21650, National Bureau of Economic Research, Inc.
    16. Haizhen Lin & Ian M. McCarthy, 2018. "Multimarket Contact in Health Insurance: Evidence from Medicare Advantage," NBER Working Papers 24486, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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