Can Health Insurance Competition Work? Evidence from Medicare Advantage

50 Pages Posted: 5 Jan 2015

See all articles by Vilsa Curto

Vilsa Curto

National Bureau of Economic Research (NBER)

Liran Einav

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Jonathan Levin

Stanford University - Department of Economics; Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Jay Bhattacharya

Stanford University - Center for Primary Care and Outcomes Research; National Bureau of Economic Research (NBER)

Date Written: December 2014

Abstract

We estimate the economic surplus created by Medicare Advantage under its reformed competitive bidding rules. We use data on the universe of Medicare beneficiaries, and develop a model of plan bidding that accounts for both market power and risk selection. We find that private plans have costs around 12% below fee-for-service costs, and generate around $50 dollars in surplus on average per enrollee-month, after accounting for the disutility due to enrollees having more limited choice of providers. Taxpayers provide a large additional subsidy, and insurers capture most of the private gains. We use the model to evaluate possible program changes.

Suggested Citation

Curto, Vilsa and Einav, Liran and Levin, Jonathan D. and Bhattacharya, Jayanta, Can Health Insurance Competition Work? Evidence from Medicare Advantage (December 2014). NBER Working Paper No. w20818. Available at SSRN: https://ssrn.com/abstract=2545216

Vilsa Curto (Contact Author)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
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Liran Einav

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States
650-723-3704 (Phone)
928-223-4973 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

Jonathan D. Levin

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Jayanta Bhattacharya

Stanford University - Center for Primary Care and Outcomes Research ( email )

Center for Health Policy
179 Encina Commons
Stanford, CA 94305-6019
United States
650-736-0404 (Phone)
650-723-1919 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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