Can Health Insurance Competition Work? Evidence from Medicare Advantage
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.
We thank Amy Finkelstein, Eugenio Miravete, and many seminar participants for useful comments. Bhattacharya would like to thank the National Institute on Aging (grants R37AG036791 and R21AG041112) for funding his work on this project. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
I would like to disclose that I am an adviser to NunaHealth, a data analytics startup company, which specializes in analytics of health insurance claims. I am not being paid by them, but have received equity (nominal value is less than $1,000; the market value is hard to assess).Jonathan Levin
I am an advisor to Collective Health, a start-up in San Mateo, California that administers self-funded insurance plans for small to medium sized employers.