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

94 Pages Posted: 3 Sep 2014 Last revised: 7 Feb 2018

Marika Cabral

University of Texas at Austin; National Bureau of Economic Research (NBER)

Michael Geruso

University of Texas at Austin; National Bureau of Economic Research (NBER)

Neale Mahoney

University of Chicago Booth School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: July 3, 2017

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.

Keywords: Health insurance, Medicare Advantage, incidence, pass-through

JEL Classification: H22, D4, I11, I13, L1

Suggested Citation

Cabral, Marika and Geruso, Michael and Mahoney, Neale, Do Larger Health Insurance Subsidies Benefit Patients or Producers? Evidence from Medicare Advantage (July 3, 2017). Becker Friedman Institute for Research in Economics Working Paper No. 2018-6. Available at SSRN: https://ssrn.com/abstract=2489999 or http://dx.doi.org/10.2139/ssrn.2489999

Marika Cabral

University of Texas at Austin ( email )

Department of Economics
2225 Speedway, BRB 1.116, C3100
Austin, TX 78712
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Michael Geruso

University of Texas at Austin ( email )

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Neale Mahoney (Contact Author)

University of Chicago Booth School of Business ( email )

5807 South Woodlawn Ave
Chicago, IL 60637
United States
773.702.9278 (Phone)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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