Research

JOB MARKET PAPER: Selection Corrected Benchmark in Medicare Advantage Market 

Abstract: I develop a structural model of demand, supply, and government expenditure to evaluate the equilibrium and welfare impacts of current and alternative benchmarks to account for advantageous selection in Medicare Advantage (MA) market. MA was established for the government to share the cost savings of managed care by bringing private players into the federally funded Medicare program. The design of the program is such that, in theory, it can generate budgetary savings for Centers for Medicare $\&$ Medicaid Services (CMS), provide broader benefits to consumers, and yield profits for private players. The Congressional Budget Office (CBO), however, has pointed to overpayments in MA that arise due to advantageous selection of beneficiaries into the MA market. Although CMS adjusts payments to MA plans for the health conditions of beneficiaries through a measure called the risk score, there remains further selection conditional on risk score. The CBO highlights the uncertainty of measuring the welfare effects of a benchmark change due to the difficulty of predicting consumer sorting and plan pricing adjustments in response to such changes. Using survey data in addition to risk scores to capture selection, I find that if all current MA enrollees were to switch to Traditional Medicare, government expenditure would fall by $\$11$ billion. Setting the benchmark in the Medicare Advantage market at the “selection-corrected” level would yield budgetary savings of $\$4.6$ billion having MA for CMS, at the cost of a $\$0.27$ billion reduction in combined consumer surplus and producer profits.

Work in Progress

Impact of Vertical Integration on Healthcare Utilization (with Alberto Cappello)

Abstract: This paper investigates the impact of vertical integration between plans and providers on the healthcare utilization in the context of Medicare Advantage market. Our approach addresses both enrollee selection into vertically integrated plans, and also hospitals selection into vertical vertical integrated entities. We exploit the long-lasting effect of a policy-induced variation in the profitability of MA plans across market to develop a Bartik-style instrument and estimate the causal effect of vertical integration on inpatient length of stay.

Effect of MLR on Vertical Integration (with Alberto Cappello)

Abstract: Vertical integration between insurers and healthcare providers creates strong incentives to circumvent federal regulations designed to limit insurer profit margins and enhance patient welfare. This paper focuses on the minimum Medical Loss Ratio (MLR) requirement, which mandates that Medicare Advantage plans allocate at least 85% of their revenue to medical care. Since providers are not subject to MLR regulations, insurers may set the transfer prices used to value transactions with affiliated providers above market-level prices as a means of circumventing the constraint on profits posed by MLR rules. Using a county-level longitudinal dataset, we implement a triple difference in difference strategy to assess whether vertically integrated insurer-provider organizations use internal transfer prices to manipulate the MLR. Our findings will inform the ongoing policy efforts aimed at evaluating how vertical integration and related-party transactions affect the effectiveness of MLR regulation in the

Medicare Advantage program.