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CHAPTER 3. MEDIGAP 121 hazard for individuals on the margin of Medigap choice. Since these marginal individuals are more price sensitive when it comes to premiums, it is natural for them to be more sensitive to the cost-sharing instruments of Medigap, suggesting larger ef- fects for these marginal individuals than the average Medigap policyholder. 6 For our purposes, this feature is a strength of our empirical strategy rather than a weakness. The effect for individuals marginal to a change in premiums is the effect of interest for counterfactuals involving a premium tax or subsidy, as the individuals identifying the estimated effect are exactly those who would be affected by such a policy. We construct back-of-the-envelope policy counterfactuals of taxes and subsidies to Medigap premiums using our estimated parameters. A 20 percent tax would reduce coverage by 9.5 percentage points, implying a total budgetary savings of 6.2 percent of Medicare costs of the sample. About 1/4 of the savings would come from tax revenues and 3/4 from reduced medical costs. A 40 percent tax would save 11.4 percent and a Pigovian tax that fully accounts for the negative fiscal externality would generate savings of 18.1 percent. We note that our parameters are estimated using modest premium variation, and thus our policy counterfactuals, which involve large taxes and subsidies, should be viewed with some caution. As we discuss below, a more nuanced tax policy that accounts for offsets might be able to generate both larger costs savings and better health. The remainder of the paper proceeds as follows. Section 3.2 describes background information about Medicare and the supplemental insurance market. Section 3.3 briefly describes the data used in our empirical analysis. Section 3.4 presents our empirical model. In Section 3.5 , we discuss our identification strategy. Results are presented in Section 3.6. Section 3.7 contains the policy counterfactuals. Section 3.8 concludes. 6 The intuition for this relationship that suggests individuals at the margin of selecting into insurance based on premiums will be more sensitive to reductions in coinsurance. A similar intution is formalized in a model in a working paper by ?. In their paper, the authors refer to this sort of selection as “selection on moral hazard.”
CHAPTER 3. MEDIGAP 122 3.2 Background Medicare is the government health insurance program for elderly, covering nearly all individuals 65 and older in the United States. In 2008, Medicare covered 44 million beneficiaries at a cost of $468 billion, accounting for about 13 percent of government expenditure and 3.2 percent of GDP. By 2025, Medicare is projected to cover 71 million beneficiaries, consuming 20 percent of government expenditure and 5.5 percent of GDP. 7 Medicare beneficiaries choose between publicly administered traditional fee-for- service (FFS) insurance coverage and Medicare Advantage policies, private insurance plans with premiums subsidized by Medicare. 8 The majority (88 percent) of Medicare beneficiaries have FFS coverage. This coverage allows beneficiaries their choice of doctor and the ability to see a specialist without a referral. To control costs, fee- for-service Medicare uses cost-sharing, exposing beneficiaries to about 20 percent of the cost of care received on the margin. A key feature of traditional Medicare is that there is no annual or lifetime out-of-pocket maximum amount that a beneficiary will pay, so individuals are exposed to significant financial risk. Traditional Medicare cost-sharing instruments for 2000 and 2005 (the first and last years of our sample) are shown in Table 3.1. To protect against the financial risk of traditional Medicare, the vast majority (91 percent) of beneficiaries carry supplemental insurance. Some beneficiaries obtain supplemental insurance through a former employer, poor beneficiaries may qualify for supplemental insurance through the government sponsored Medicaid program, and everyone else has the option to purchase private Medigap coverage. Medicare Ad- vantage is an alternative to traditional fee-for-service Medicare that is available to many beneficiaries. 9 These private insurance policies are subsidized by Medicare, and 7 Percent of GDP numbers are gross of premiums; percent of budget numbers are net (Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, 2010; Analytical Perspectives: Budget of the U.S. Government, 2010). 8 We will refer to Medicare Part C as Medicare Advantage in this paper, although this option was called Medicare + Choice during the beginning of the period we analyze. 9 Although Medicare Advantage beneficiaries can technically sign up for Medigap policies, this is discouraged by Medicare and individuals do not seem to do this in practice. Medicare Advantage
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ESSAYS IN PUBLIC FINANCE AND INDUST
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I certify that I have read this dis
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insurance choice. Among other thing
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Acknowledgements I am deeply thankf
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Contents Preface iv Acknowledgement
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2.5.3 The Value of Plan Choice ....
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List of Tables 1.1 Asset Exemption
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4.9 First Week Contract Spending fo
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4.3 I.T. Contracting by Week ......
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CHAPTER 1. BANKRUPTCY 2 of the dead
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CHAPTER 1. BANKRUPTCY 4 relevant le
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CHAPTER 1. BANKRUPTCY 6 superficial
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CHAPTER 1. BANKRUPTCY 8 After treat
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CHAPTER 1. BANKRUPTCY 12 newly edit
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CHAPTER 1. BANKRUPTCY 33 Puzzle 3:
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CHAPTER 1. BANKRUPTCY 35 of income
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CHAPTER 1. BANKRUPTCY 40 TaxSim pro
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Payments CHAPTER 1. BANKRUPTCY 42 $
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OOP payments CHAPTER 1. BANKRUPTCY
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ln(seizable sssets) CHAPTER 1. BANK
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50 60 70 80 90 100 Insurance covera
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Pr(WTP > premium) CHAPTER 1. BANKRU
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CHAPTER 1. BANKRUPTCY 52 Table 1.1:
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CHAPTER 1. BANKRUPTCY 62 Table 1.11
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CHAPTER 1. BANKRUPTCY 64 Table 1.14
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CHAPTER 2. HEALTH PLAN CHOICE 66 pl
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