Working Paper: NBER ID: w20470
Authors: Marika Cabral; Michael Geruso; Neale Mahoney
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: Medicare Advantage; health insurance subsidies; economic incidence; difference-in-differences; market power
JEL Codes: D4; H22; I11; I13; L1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increased Medicare Advantage (MA) capitation payments (H51) | Lower premiums (G52) |
| Increased Medicare Advantage (MA) capitation payments (H51) | More generous benefits (H55) |
| Increased Medicare Advantage (MA) capitation payments (H51) | Total passthrough to consumers (D19) |
| Market competition (L13) | Passthrough rates (H29) |
| Advantageous selection (C52) | Incomplete passthrough (Y60) |