Measuring the Return on Government Spending on the Medicare Managed Care Program

Hall Anne E ()
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Hall Anne E: Bureau of Economic Analysis

The B.E. Journal of Economic Analysis & Policy, 2011, vol. 11, issue 2, 43

Abstract: I estimate the welfare provided to beneficiaries by the Medicare managed care program, and its net costs, for the years 1999-2002. I measure beneficiary welfare with a nested logit model of demand for Medicare HMO plans using detailed data on plan benefits. From this, I find that total beneficiary welfare provided by the program over the four-year period is about $61 billion (2000 $). I also use data on and estimates of the favorable selection enjoyed by Medicare HMOs from the research literature to estimate net costs of the program, which range from $21 billion to $31 billion (2000 $). Estimated net beneficiary welfare of the program therefore ranges from $30 billion to $40 billion and the estimated return on government spending ranges from 96 percent to 186 percent. Even though managed care plans are overpaid by Medicare, the program still enjoys a substantial return due to the popularity of its offerings.

Keywords: HMO; Medicare; consumer welfare (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (3)

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DOI: 10.2202/1935-1682.2744

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