Tuesday, June 9, 2015
Jay Bhattacharya (Stanford University); Vilsa Curto (Stanford University); Liran Einav (Stanford University); and Jonathan Levin (Stanford University) ask Can Health Insurance Competition Work? Evidence from Medicare Advantage.
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 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.