Do Private Insurers Game Medicare Advantage?
Abstract
Nearly all Americans aged 65 and older are covered by Medicare, and more than half are now enrolled in Medicare Advantage, a publicly financed, privately administered health insurance program. Although the federal government sets payment schedules for private insurers, the total payments to them have surged in recent years. In this paper, I examine how higher federal payments in Medicare Advantage affect insurers’ strategic behavior, plan characteristics, and market entry. Exploiting sharp discontinuities in federal payment rates across counties, I find that insurers retain 88% of the additional payments, ranging from 73% to 97% depending on market competition. The decomposition of payment use shows that most of the additional payments are captured as profit rather than spent on serving enrollees. There is little evidence that higher payments are passed through to enrollees in the form of lower maximum out-of-pocket limits, reduced copayments, or improvements in plan quality. Higher payments also do not induce entry of new insurers but instead increase narrow- network plans that target healthier individuals. Overall, the results raise concerns about whether federal payments to private insurers improve enrollee benefits and promote competition.
(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 Contemporary Economic Policy (CEP) 2025)
Working Papers
The Impact of Star Rating System 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% 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-cent-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, 35% 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 28% for small single-serving drinks where consumers may be more price sensitive and 50% 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 are widespread in U.S. health insurance markets, yet little is known about 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 while simultaneously creating incentives to expand benefits, both of which influence insurers’ decisions to terminate plans. In addition, insurers also offer plans off the ACA marketplace. I further analyze whether there are spillover effects on off-Marketplace plans within the same insurer. The analysis is currently underway.