The Price Sensitivity of Medicare Beneficiaries: A Regression Discontinuity Approach

42 Pages Posted: 6 Jul 2011 Last revised: 6 Mar 2012

See all articles by Tom Buchmueller

Tom Buchmueller

University of Michigan - Stephen M. Ross School of Business

Kyle L Grazier

affiliation not provided to SSRN

Richard A. Hirth

University of Michigan at Ann Arbor - School of Public Health

Edward N. Okeke

RAND Corporation

Date Written: June 1, 2010

Abstract

We use 4 years of data from the retiree health benefits program of the University of Michigan to estimate the effect of price on the health plan choices of Medicare beneficiaries. During the period of our analysis, changes in the University's premium contribution rules led to substantial price changes. A key feature of this ‘natural experiment’ is that individuals who had retired before a certain date were exempted from having to pay any premium contributions. This ‘grandfathering’ creates quasi-experimental variation that is ideal for estimating the effect of price. Using regression discontinuity methods, we compare the plan choices of individuals who retired just after the grandfathering cutoff date and were therefore exposed to significant price changes to the choices of a ‘control group’ of individuals who retired just before that date and therefore did not experience the price changes. The results indicate a statistically significant effect of price, with a $10 increase in monthly premium contributions leading to a 2 to 3 percentage point decrease in a plan's market share.

Keywords: adverse selection, elasticity, health insurance, managed competition

Suggested Citation

Buchmueller, Tom and Grazier, Kyle L and Hirth, Richard A. and Okeke, Edward N., The Price Sensitivity of Medicare Beneficiaries: A Regression Discontinuity Approach (June 1, 2010). Health Economics, Forthcoming, American Society of Health Economists (ASHEcon) Paper , Available at SSRN: https://ssrn.com/abstract=1880320

Tom Buchmueller (Contact Author)

University of Michigan - Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

Kyle L Grazier

affiliation not provided to SSRN ( email )

Richard A. Hirth

University of Michigan at Ann Arbor - School of Public Health ( email )

1415 Washington Heights
Ann Arbor, MI 48109-2029
United States

Edward N. Okeke

RAND Corporation ( email )

1776 Main Street
P.O. Box 2138
Santa Monica, CA 90407-2138
United States

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