Do Private Insurers Game Medicare Advantage?
Abstract
Nearly all Americans over the age of 65 are covered by Medicare, and more than half are now enrolled in Medicare Advantage (MA), a form of semi-privatized health insurance. Although the federal government sets payment schedules to private insurers participating in the program, costs have surged in recent years. I exploit sharp discontinuities in federal payment rates across counties to identify the impact of higher payments on insurer profits, patient costs, market entry, and plan characteristics. I find that insurance companies capture 86% of additional payments by claiming higher patient costs. This varies across markets, with 79% capture in competitive markets and 99% in concentrated markets. There is little evidence that the additional payments are passed passed on to enrollees through lower premiums, reduced copayments, or improvements in plan quality. Higher payments result in more high quality plans being offered in a county, but do not increase the number of insurers offering plans. The results cast doubt on the effectiveness of higher federal payments to Medicare Advantage providers for generating benefits for enrollees and greater competition among insurers.
(Scheduled to be presented at the Allied Social Science Associations (ASSA) Annual Meeting 2026; presented at the All-California Labor Economics Conference (ACLEC) 2025, the American Society of Health Economists (ASHEcon) Conference 2025, the Western Economic Association International (WEAI) Annual Conference 2025, and the Contemporary Economic Policy (CEP) 2025.)
Working Papers
The Impact of Star Rating Systems on Market Share under Medicare Advantage.
It is widely recognized that the elderly often make sub-optimal choices when it comes to health insurance plans, which can adversely impact their welfare. For this reason, the government introduced the Star Rating system in Medicare Advantage to allow enrollees to compare the quality of plans with ease. This study uses MA plans performance and enrollment data to examine whether plans with higher star ratings gain greater market share. Leveraging the exogenous variation at the underlying score cutoffs that map to displayed 0.5 star intervals, I find that a 0.5 increase in star rating leads to a 20 percent increase in market share. The extent of the market share increase varies across the score distribution. After being assigned a higher star rating, insurance companies expand the availability of the plan to more counties, with the largest effect occurring at the 4 star (out of 5) rating cutoff. Overall, the analysis reveals that the Star Rating system leads to a more competitive Medicare Advantage market characterized by the availability of higher-quality plans.
Tax Incidence of Sugar-Sweetened Beverages: Evidence of Measure Z in Santa Cruz with John Cawley (Syracuse University) and David E. Frisvold (The University of Iowa)
In response to increases in diet-related chronic disease such as obesity and diabetes, many countries and U.S. cities have adopted taxes on sugar-sweetened beverages (SSBs). In this paper, we estimate the incidence of the newest tax on SSBs in the U.S.: that in Santa Cruz, CA, which adopted 2-cents-per-ounce tax on May 1, 2025. We estimate difference-in-difference models that are estimated using newly-collected store audit data, and which compare the change in prices in the treated city of Santa Cruz with those in the comparison city of Monterey, CA. We estimate that, on average across products and sizes, 27 percent of the tax is passed through to consumers in the form of higher prices; this is on the lower end of estimates for such taxes in the U.S. and may reflect more price sensitive consumers. Models estimated separately by product size indicate that the pass-through rate is 18 percent for small single-serving drinks where consumers may be more price sensitive and 40 percent for large single-serving and multi-serving products.
Work in Progress
The Impact of State Reinsurance Programs on Health Insurance Plan Termination.
Plan termination and reassignment of enrollees is widespread in U.S. health insurance markets, yet little is known about the private insurers' underlying motives. In Affordable Care Act (ACA) Marketplace, terminated plans have higher patient costs than their replacements, suggesting strategic risk selection. To examine how risk selection shapes plan termination decisions, I exploit the staggered adoption of state reinsurance programs in the ACA Marketplace, which reimburse insurers for high-cost medical claims submitted by healthcare providers above a predetermined threshold. Insurers in treated states received an additional 10 to 20 million dollars annually in reinsurance payments, indicating substantial support for reducing their risk burden and providing stronger incentives to continue offering plans. In addition, insurers also offer plans off ACA marketplace. Thus, when plans in the ACA market are affected by this program, I further analyze whether there are spillover effects on off-ACA marketplace plans within the same insurer. This study is currently in the process of analyzing results.