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

95 Pages Posted: 8 Sep 2014

See all articles by Marika Cabral

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: September 2014

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

Cabral, Marika and Geruso, Michael and Mahoney, Neale, Do Larger Health Insurance Subsidies Benefit Patients or Producers? Evidence from Medicare Advantage (September 2014). NBER Working Paper No. w20470. Available at SSRN: https://ssrn.com/abstract=2492980

Marika Cabral (Contact Author)

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

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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