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Do Larger Health Insurance Subsidies Benefit Patients or Producers? Evidence from Medicare Advantage

Author

Listed:
  • Marika Cabral
  • Michael Geruso
  • Neale Mahoney

Abstract

A central question in the debate over privatized Medicare is whether increased government payments to private Medicare Advantage (MA) plans generate lower premiums for consumers or higher profits for producers. Using difference-in-differences variation brought about by a sharp legislative change, we find that MA insurers pass through 45% of increased payments in lower premiums and an additional 9% in more generous benefits. We show that advantageous selection into MA cannot explain this incomplete pass-through. Instead, our evidence suggests that market power is important, with premium pass-through rates of 13% in the least competitive markets and 74% in the most competitive.

Suggested Citation

  • 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.
  • Handle: RePEc:nbr:nberwo:20470
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    References listed on IDEAS

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    1. repec:bla:randje:v:48:y:2017:i:4:p:877-905 is not listed on IDEAS
    2. Dunn, Abe, 2010. "The value of coverage in the medicare advantage insurance market," Journal of Health Economics, Elsevier, vol. 29(6), pages 839-855, December.
    3. Liran Einav & Amy Finkelstein & Mark R. Cullen, 2010. "Estimating Welfare in Insurance Markets Using Variation in Prices," The Quarterly Journal of Economics, Oxford University Press, vol. 125(3), pages 877-921.
    4. E. Glen Weyl & Michal Fabinger, 2013. "Pass-Through as an Economic Tool: Principles of Incidence under Imperfect Competition," Journal of Political Economy, University of Chicago Press, vol. 121(3), pages 528-583.
    5. 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.
    6. 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.
    7. Jeffrey Clemens & Joshua D. Gottlieb, 2017. "In the Shadow of a Giant: Medicare’s Influence on Private Physician Payments," Journal of Political Economy, University of Chicago Press, vol. 125(1), pages 1-39.
    8. Kate Ho & Joseph Hogan & Fiona Scott Morton, 2017. "The impact of consumer inattention on insurer pricing in the Medicare Part D program," RAND Journal of Economics, RAND Corporation, vol. 48(4), pages 877-905, December.
    9. repec:mpr:mprres:3171 is not listed on IDEAS
    10. Duggan, Mark & Starc, Amanda & Vabson, Boris, 2016. "Who benefits when the government pays more? Pass-through in the Medicare Advantage program," Journal of Public Economics, Elsevier, vol. 141(C), pages 50-67.
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    Citations

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    Cited by:

    1. Kurt Lavetti & Kosali Simon, 2018. "Strategic Formulary Design in Medicare Part D Plans," American Economic Journal: Economic Policy, American Economic Association, vol. 10(3), pages 154-192, August.
    2. 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.
    3. Polyakova, Maria, 2016. "Risk selection and heterogeneous preferences in health insurance markets with a public option," Journal of Health Economics, Elsevier, vol. 49(C), pages 153-168.
    4. 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.
    5. Sharat Ganapati & Joseph S. Shapiro & Reed Walker, 2016. "The Incidence of Carbon Taxes in U.S. Manufacturing: Lessons from Energy Cost Pass-through," Cowles Foundation Discussion Papers 2038R, Cowles Foundation for Research in Economics, Yale University, revised Jan 2017.
    6. repec:eee:pubeco:v:165:y:2018:i:c:p:48-72 is not listed on IDEAS
    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. Liran Einav & Amy Finkelstein & Maria Polyakova, 2016. "Private Provision of Social Insurance: Drug-specific Price Elasticities and Cost Sharing in Medicare Part D," NBER Working Papers 22277, National Bureau of Economic Research, Inc.
    9. Christos Genakos & Mario Pagliero, 2019. "Competition and Pass-Through: Evidence from Isolated Markets," CEP Discussion Papers dp1638, Centre for Economic Performance, LSE.
    10. Sumit Agarwal & Souphala Chomsisengphet & Neale Mahoney & Strö & Johannes bel, 2015. "Do Banks Pass Through Credit Expansions? The Marginal Profitability of Consumer Lending During the Great Recession," CESifo Working Paper Series 5521, CESifo Group Munich.
    11. Michael Geruso & Timothy Layton, 2015. "Upcoding: Evidence from Medicare on Squishy Risk Adjustment," NBER Working Papers 21222, National Bureau of Economic Research, Inc.
    12. 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.
    13. Maria Polyakova & Stephen P. Ryan, 2019. "Subsidy Targeting with Market Power," NBER Working Papers 26367, National Bureau of Economic Research, Inc.
    14. Sumit Agarwal & Souphala Chomsisengphet & Neale Mahoney & Johannes Stroebel, 2015. "Do Banks Pass Through Credit Expansions to Consumers Who Want to Borrow?," NBER Working Papers 21567, National Bureau of Economic Research, Inc.
    15. Sharat Ganapati & Joseph S. Shapiro & Reed Walker, 2016. "Energy Cost Pass-Through in U.S. Manufacturing: Estimates and Implications for Carbon Taxes," NBER Working Papers 22281, National Bureau of Economic Research, Inc.
    16. Harju, Jarkko & Kosonen, Tuomas & Skans, Oskar Nordström, 2018. "Firm types, price-setting strategies, and consumption-tax incidence," Journal of Public Economics, Elsevier, vol. 165(C), pages 48-72.
    17. Harju, Jarkko & Kosonen, Tuomas & Skans, Oskar Nordström, 2018. "Firm types, price-setting strategies, and consumption-tax incidence," Journal of Public Economics, Elsevier, vol. 165(C), pages 48-72.
    18. Laura Abrardi & Luca Colombo & Piero Tedeschi, 2019. "The Gains of Ignoring Risk: Insurance with Better Informed Principals," DISCE - Working Papers del Dipartimento di Economia e Finanza def084, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    19. repec:aea:aejpol:v:11:y:2019:i:2:p:64-107 is not listed on IDEAS
    20. Michael Geruso & Timothy Layton & Daniel Prinz, 2019. "Screening in Contract Design: Evidence from the ACA Health Insurance Exchanges," American Economic Journal: Economic Policy, American Economic Association, vol. 11(2), pages 64-107, May.
    21. Genakos, Christos D. & Pagliero, Mario, 2019. "Competition and Pass-Through: Evidence from Isolated Markets," CEPR Discussion Papers 13882, C.E.P.R. Discussion Papers.

    More about this item

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • 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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