The Value of Coverage in the Medicare Advantage Insurance Market

Abstract

This paper examines the impact of coverage on demand for health insurance in the Medicare Advantage (MA) insurance market. Estimating the e¤ects of coverage on demand poses a challenge for researchers who must must consider both the hundreds of bene.ts that a¤ect out-of-pocket costs (OOPC) to consumers, but also the endogeneity of coverage. These problems are addressed in a discrete choice demand model by employing a unique measure of OOPC that considers a consumer.s expected payments for a .xed bundle of health services and applying instrumental variable techniques to address potential endogneity bias. The results of the demand model show that OOPC have a signi.cant e¤ect on consumer surplus and that not instrumenting for OOPC results in a signi.cant underestimate of the value of coverage.