Quality Ratings and Premiums in the Medicare Advantage Market

38 Pages Posted: 14 Jan 2015

See all articles by Ian M. McCarthy

Ian M. McCarthy

Emory University - Department of Economics

Michael Darden

Johns Hopkins University - Carey Business School

Date Written: January 13, 2015

Abstract

We examine the response of Medicare Advantage contracts to published quality ratings. We identify the effect of star ratings on premiums using a regression discontinuity design that exploits plausibly random variation around rating thresholds. We find that 3, 3.5, and 4-star contracts in 2009 significantly increased their 2010 monthly premiums by $20 or more relative to contracts just below the respective threshold values. High quality contracts also disproportionately dropped $0 premium plans or expanded their offering of positive premium plans. Welfare results suggest that the estimated premium increases reduced consumer welfare by over $250 million among the affected beneficiaries.

Keywords: Medicare Advantage, premiums, quality ratings, regression discontinuity

JEL Classification: D21, D43, Ill, C51

Suggested Citation

McCarthy, Ian M. and Darden, Michael, Quality Ratings and Premiums in the Medicare Advantage Market (January 13, 2015). Available at SSRN: https://ssrn.com/abstract=2549107 or http://dx.doi.org/10.2139/ssrn.2549107

Ian M. McCarthy (Contact Author)

Emory University - Department of Economics ( email )

1602 Fishburne Drive
Atlanta, GA 30322
United States

Michael Darden

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

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