To provide national estimates of the effect of out‐of‐pocket premiums and benefits on Medicare beneficiaries' choice among managed care health plans.
Data Sources/Study Setting
The data represent the population of all Medicare+Choice (M+C) plans offered to Medicare beneficiaries in the United States in 1999.
The dependent variable is the log of the ratio of the market share of the th health plan to the lowest cost plan in the beneficiary's county of residence. The explanatory variables are measures of premiums and benefits in the th health plan relative to the premiums and benefits in the lowest cost plan.
The data are from the 1999 Medicare Compare database, and M+C enrollment data from the Centers for Medicare and Medicaid Services (CMS).
A $10 increase in an M+C plan's out‐of‐pocket premium, relative to its competitors, is associated with a decrease of four percentage points in the th plan's market share (i.e., from 25 to 21 percent), holding the premiums of competing plans constant.
Although our price elasticity estimates are low, the market share losses associated with small changes in a health plan's premium, relative to its competitors, may be sufficient to discipline premiums in a competitive market. Bidding behavior by plans in the Medicare Competitive Pricing Demonstration supports this conclusion.
