The consequences of a public health insurance option: Evidence from Medicare Part D

Publication Type

Journal Article

Publication Date

4-2019

Abstract

This paper structurally estimates a demand and supply model of Medicare Part D and evaluates counterfactual scenarios that introduce a public option competing alongside private insurers. The results show that a public option with a cost advantage expands coverage and crowds out private insurer enrollment, but has little effect on market premiums. Additional subsidy payments covering the expanded base of enrollees offset welfare gains regardless of the public option's cost position. In scenarios where private insurers cream skim the public option, risk adjustment payments create a pricing wedge that acts as a de facto subsidy for private insurers and a tax on the public option, limiting the public option's penetration but improving welfare through lower private insurer premiums. Risk corridors can be used as a lever to regulate the pricing wedge and redistribute surplus.

Keywords

Medicare Part D, health insurance, public option, risk adjustments

Discipline

Health Economics | Insurance

Research Areas

Corporate Communication

Publication

American Journal of Health Economics

Volume

5

Issue

2

First Page

191

Last Page

226

ISSN

2332-3493

Identifier

10.1162/ajhe_a_00119

Publisher

Massachusetts Institute of Technology Press (MIT Press): 12 month embargo

Additional URL

https://doi.org/10.1162/ajhe_a_00119

This document is currently not available here.

Share

COinS