Can Health Insurance Competition Work? Evidence from Medicare Advantage

Source: Vilsa Curto, Liran Einav, Jonathan Levin, Jayanta Bhattacharya, National Bureau of Economic Research (NBER), NBER Working Paper No. w20818, December 2014
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From the 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 dollars 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.