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Can Health Insurance Competition Work? Evidence from Medicare Advantage

Jay Bhattacharya (), Vilsa Curto (), Liran Einav () and Jonathan Levin
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Jay Bhattacharya: Stanford University
Vilsa Curto: Stanford University
Liran Einav: Stanford University

No 14-015, Discussion Papers from Stanford Institute for Economic Policy Research

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.

Date: 2014-12
New Economics Papers: this item is included in nep-com and nep-hea
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