ABSTRACT
The Affordable Care Act requires insurers to offer cost sharing reductions (CSRs) to low-income consumers on the Marketplaces. We link 2013-2015 All-Payer Claims Data to 2004-2013 administrative hospital discharge data from Utah and exploit policy-driven differences in the actuarial value of CSR plans that are solely determined by income. This allows us to examine the effect of cost sharing on medical spending among low-income individuals. We find that enrollees facing lower levels of cost sharing have higher levels of health care spending, controlling for past health care use. We estimate demand elasticities of total health care spending among this low-income population of approximately -0.12, suggesting that demand-side price mechanisms in health insurance design work similarly for low-income and higher-income individuals. We also find that cost sharing subsidies substantially lower out-of-pocket medical care spending, showing that the CSR program is a key mechanism for making health care affordable to low-income individuals.
ABSTRACT
The design of Medicare Part D causes most beneficiaries to receive fragmented health insurance, with drug and medical coverage separated. Fragmentation is potentially inefficient since separate insurers optimize over only one component of healthcare spending, despite complementarities and substitutabilities between healthcare types. Fragmentation of only some plans can also lead to market distortions due to differential adverse selection, as integrated plans may use drug formularies to induce enrollment by patients that are profitable in the medical insurance market. We study the design of insurance plans in Medicare Part D, and find that formularies reflects these two differences in incentives.
ABSTRACT
The use of risk-adjustment formulae in setting payments to Medicare Advantage (MA) plans reduces the potential for advantageous selection on factors included in the formulae, but can theoretically worsen overall selection if plans are able to target beneficiaries based on excluded factors. Since MA medical risk-adjustment excludes prescription drug utilization, demand for drugs can be exploited by plans to induce advantageous selection. We show evidence that the introduction of Medicare Part D provided a mechanism for MA plans to increase selection, and that consumers responded, increasing MA market shares among beneficiaries taking drugs associated with the strongest advantageous selection incentives. For the average Medicare beneficiary in our sample, we estimate that this change in advantageous selection following the introduction of Medicare Part D increased the probability of enrolling in an MA plan by about 7.1%.
