Working Paper: NBER ID: w19787
Authors: Marika Cabral; Neale Mahoney
Abstract: Most health insurance uses cost-sharing to reduce excess utilization. Supplemental insurance can blunt the impact of this cost-sharing, increasing utilization and exerting a negative externality on the primary insurer. This paper estimates the effect of private Medigap supplemental insurance on public Medicare spending using Medigap premium discontinuities in local medical markets that span state boundaries. Using administrative data on the universe of Medicare beneficiaries, we estimate that Medigap increases an individual’s Medicare spending by 22.2%. We calculate that a 15% tax on Medigap premiums generates savings of $12.9 billion annually, with a standard error of $4.9 billion.
Keywords: Medicare; Medigap; taxation; externalities; health insurance
JEL Codes: H21; I13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Medigap (I13) | Medicare spending (H51) |
| Medigap premiums (I13) | Medicare spending (H51) |
| Medigap (I13) | Part B physician claims (I11) |
| Medigap (I13) | Part A hospital stays (I13) |
| Medigap premiums (I13) | Medigap coverage (I13) |
| Medigap coverage (I13) | net government costs (H59) |
| Medigap premiums (I13) | Medicare costs (H51) |