Wednesday, June 17, 2015
We examine the response of Medicare Advantage contracts to published quality ratings. We identify the effect of star ratings on premiums using a regression discontinuity design that exploits plausibly random variation around rating thresholds. We find that 3, 3.5, and 4-star contracts in 2009 significantly increased their 2010 monthly premiums by $20 or more relative to contracts just below the respective threshold values. High quality contracts also disproportionately dropped $0 premium plans or expanded their offering of positive premium plans. Welfare results suggest that the estimated premium increases reduced consumer welfare by over $250 million among the affected beneficiaries.
[Ed.: This is a promising research design for a wide variety of star ratings, at least if the underlying distribution of scores is available to the researcher.]