Working Paper

The value of Medicare managed care plans and their prescription drug benefits

Abstract: I estimate the welfare, both gross and net, provided by the Medicare managed care program in 1999 through 2002. First, I estimate a model of demand for the benefits offered by managed care plans to Medicare beneficiaries. I then use the demand estimates to form estimates of welfare provided by the program. Medicare beneficiaries derived $14.9 billion of gross welfare per year from the Medicare HMO program. Depending on the amount of selection in the program, the Medicare managed care program provided from -$10.3 billion to $35.1 billion of net welfare total over the four-year period. I also estimate the welfare that beneficiaries receive from the prescription drug benefits offered by Medicare HMOs. HMO enrollees in plans offering drugs received on average $13 of consumer surplus per month from the drug benefits in 1999, and this estimate drops to $10 by 2002.

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 2007

Number: 2007-19