Working Paper: NBER ID: w28529
Authors: Colleen Carey
Abstract: In many federally-subsidized insurance markets, insurers are subsidized on the basis of enrollee characteristics; in principle, subsidies that are "risk adjusted" in this way compensate insurers for ex ante differences in expected cost. Between 2010 and 2011, the subsidies in Medicare Part D were revised, sharply changing the subsidy for diagnoses and demographic characteristics. This paper uses the response of insurers to the subsidy update to estimate pass-through of government subsidies to two insurer choice variables: premiums and out-of-pocket costs. We find that diagnostic subsidies are passed-through at a rate of 40% to the out-of-pocket costs for relevant drugs. Premiums are not responsive to overall subsidies, but do reflect changes in the demographic component of subsidies.
Keywords: Medicare Part D; subsidy passthrough; health insurance; diagnostic subsidies; demographic subsidies
JEL Codes: H51; I11; L13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Diagnostic subsidies (H23) | out-of-pocket costs (J32) |
| Demographic subsidies (J11) | premiums (G22) |
| Overall subsidies (H23) | premiums (G22) |
| Demographic subsidies (J11) | overall passthrough rate (H43) |