NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Do Larger Health Insurance Subsidies Benefit Patients or Producers? Evidence from Medicare Advantage

Marika Cabral, Michael Geruso, Neale Mahoney

NBER Working Paper No. 20470
Issued in September 2014, Revised in July 2017
NBER Program(s):AG, HC, HE, IO, PE

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.

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Document Object Identifier (DOI): 10.3386/w20470

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