Nothing for something? Estimating cost and value for beneficiaries from recent medicare spending increases on HMO payments and drug benefits
- 76 Downloads
The Medicare Modernization Act of 2003 added a new outpatient prescription drug benefit to Medicare and increased payments to HMOs. We estimate a nested logit model of plan choice to quantify the welfare benefits from these two expansion paths. We find that the addition of stand-alone prescription drug plans was welfare improving and produced nine times as much value per government dollar as the increase in payments to HMOs. In light of these results, we suggest that HMO bidding procedures should be modified to reduce payments to HMOs by about $67 billion over the next 10 years.
KeywordsMedicare HMO payment Choice models Welfare
JEL ClassificationsI 11 I 18
- Berenson R. (2004) Medicare disadvantaged and the search for the elusive ‘level playing field’ Health Affairs Web Exclusive 15: W4-572–585Google Scholar
- Cutler D., Sheiner L. (2000) Generational aspects of Medicare. The American Economic Review 90(2): 303–307Google Scholar
- Greene W.H. (2003) Econometric analysis. Prentice Hall, Upper Saddle River New JerseyGoogle Scholar
- H. J. Kaiser Family Foundation. (2004). Prescription drug coverage for Medicare beneficiaries: an overview of the Medicare prescription drug, improvement, and modernization act of 2003 (Public Law 108–173), 14 January 2004, http://www.kff.org/medicare/6120.cfm (8 August 2005).
- H. J. Kaiser Family Foundation. (2005). Prospects for retiree health benefits as Medicare prescription drug coverage begins: Findings from the Kaiser/Hewitt 2005 survey on retiree health benefits, December 2005, http://www.kff.org/medicare/7439.cfm..
- Jack W., Sheiner L. (1997) Welfare-improving health expenditure subsidies. The American Economic Review 87(1): 206–221Google Scholar
- Jindal, B. P. (2002). Assistant Secretary for Planning and Evaluation, Department of Health and Human Services, Testimony before the Subcommittee on Health of the House Committee on Energy and Commerce, Hearing on Medicare Modernization: Examining the Federal Employees Health Benefit Program as a Model for Seniors, March 20, 2002.Google Scholar
- Maddala G.S. (1983) Limited dependent and qualitative variables in econometrics. Cambridge University Press, CambridgeGoogle Scholar
- MCBS home page: http://www.cms.hhs.gov/MCBS/default.asp..
- McFadden, D. (1974). Conditional logit analysis of qualitative choice behavior. In P. Zarembka (Ed.), Frontiers in econometrics. New York: Academic Press (pp. 105–142).Google Scholar
- Medicare Payment Advisory Commission (MedPAC). (2007). Report to the Congress: Medicare Payment Policy, March 2007.Google Scholar
- Pauly, M. V., & Zeng, Y. (2003). Adverse selection and the challenges to stand-alone prescription drug insurance, NBER Working Paper No. W9919.Google Scholar
- Pizer, S. D., Feldman, R., & Frakt, A. B. (2005). Defective design: Regional competition in Medicare. Health Affairs Web Exclusive, 24, W5-399-411.Google Scholar
- Pizer S.D., Frakt A.B. (2002) Payment policy and competition in the Medicare + Choice program. Health Care Financing Review 24(1): 83–94Google Scholar