The Effects of Market Structure and Payment Rates on Private Medicare Health Plan Entry

Abstract

Private insurance firms participating in Medicare can offer up to three principal plan types: coordinated care plans (CCPs), prescription drug plans (PDPs), and private fee for service (PFFS) plans. Firms can make entry and marketing decisions separately across plan types and geographic regions. We estimate firm-level models of Medicare private-plan entry using data from 2007-2009. Our models include a measure of market structure and separately identify CCP, PDP, and PFFS entry. We find evidence that entry barriers associated with CCP market concentration affect all three product types. We also find evidence of cross-product competition and common cost or demand factors that make entry with certain product combinations more likely. We predict that market presence of CCPs and PFFS plans will decrease and that of PDPs will increase in response to payment reductions included in the new health reform law.

Keywords: Medicare, market structure, entry

JEL Classification: C2, D4, I11, L2