Research
Research
JOB MARKET PAPER: Reducing Medicare Costs by Accounting for Selection
Abstract: The U.S. Medicare Advantage (MA) program was designed to harness competition among private insurers and the cost-containment potential of managed care to reduce spending and improve care for beneficiaries. However, imperfect risk adjustment—where payments are linked to beneficiaries’ health—fails to fully account for the selection of healthier individuals into Medicare Advantage. This generates a trade-off between higher costs from selection into MA and lower costs from managed-care efficiency. Using detailed administrative claims data combined with additional survey measures of health, I develop a structural model that jointly captures individuals’ plan choices and insurers’ equilibrium price setting. The model links these demand and supply behaviors to quantify how their interaction affects government expenditure. Counterfactual simulations show that eliminating MA would reduce government spending by 20.8 billion annually. Adjusting for selection beyond current risk adjustment into the subsidy design would realign the MA program with its cost-saving intent, reducing CMS expenditure by 7.56 billion while resulting in a combined loss of 0.585 billion in consumer surplus and producer profits.
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.