Working Paper: NBER ID: w20818
Authors: Vilsa Curto; Liran Einav; Jonathan Levin; Jay Bhattacharya
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.
Keywords: Medicare Advantage; health insurance; competition; economic surplus; managed care
JEL Codes: D43; I11; I13; L13; L33; L51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Private plans costs (J32) | Average surplus of around $50 per enrollee per month (I13) |
| $20 decrease in the Medicare subsidy (H51) | Plan enrollment (I13) |
| $20 decrease in bids from other plans (D44) | Plan enrollment (I13) |
| 10% reduction in premiums (G52) | Enrollment (I23) |
| Benchmark rates (E43) | Plan bids (D44) |
| Benchmark rates (E43) | Consumer benefits (D18) |