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Sharing the burden of subsidization: Evidence on pass-through from a subsidy revision in Medicare Part D

Colleen Carey

Journal of Public Economics, 2021, vol. 198, issue C

Abstract: In many federally-subsidized insurance markets, insurers are subsidized on the basis of enrollee characteristics; in principle, subsidies that are “risk adjusted” in this way compensate insurers for ex ante differences in expected cost. Between 2010 and 2011, the subsidies in Medicare Part D were revised, sharply changing the subsidy for diagnoses and demographic characteristics. This paper uses the response of insurers to the subsidy update to estimate pass-through of government subsidies to two insurer choice variables: premiums and out-of-pocket costs. We find that diagnostic subsidies are passed-through at a rate of 40% to the out-of-pocket costs for relevant drugs. Premiums are not responsive to overall subsidies, but do reflect changes in the demographic component of subsidies.

JEL-codes: H51 I11 I13 L13 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.jpubeco.2021.104401

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