title: Adverse and Advantageous Selection in the Medicare Supplemental Market: A Bayesian Analysis of Prescription drug Expenditure.
abstract: This paper develops an extended specification of the two-part model, which controls for unobservable self-selection and heterogeneity of health insurance, and analyzes the impact of Medicare supplemental plans on the prescription drug expenditure of the elderly, using a linked data set based on the Medicare Current Beneficiary Survey data for 2003-2004. The econometric analysis is conducted using a Bayesian econometric framework. We estimate the treatment effects for different counterfactuals and find significant evidence of endogeneity in plan choice and the presence of both adverse and advantageous selections in the supplemental insurance market. The average incentive effect is estimated to be $757 (2004 value) or 41% increase per person per year for the elderly enrolled in supplemental plans with drug coverage against the Medicare fee-for-service counterfactual and is $350 or 21% against the supplemental plans without drug coverage counterfactual. The incentive effect varies by different sources of drug coverage: highest for employer-sponsored insurance plans, followed by Medigap and managed medicare plans.
authors.affiliation: Evidera, Lexington, MA, USA.
authors.forename: Qian
authors.initials: Q
authors.lastname: Li
authors.affiliation: Department of Economics, University of Queensland, Brisbane, Australia.|Department of Economics, Indiana University-Bloomington, Bloomington, IN, USA.
authors.forename: Pravin K
authors.initials: PK
authors.lastname: Trivedi
mesh_terms: D000368:Aged; D001499:Bayes Theorem; D005102:Health Expenditures / Q000706:statistics & numerical data; D006296:Health Services; D006801:Humans; D017054:Insurance, Medigap / Q000191:economics*; D007356:Insurance, Pharmaceutical Services / Q000191:economics*; D008390:Markov Chains; D006278:Medicare / Q000191:economics*; D055553:Prescription Drugs / Q000191:economics*; D014481:United States
chemical_list: D055553:Prescription Drugs
keywords: Markov-chain Monte Carlo; advantageous selection; endogenous treatment effect; supplemental insurance