THE PRICE SENSITIVITY OF MEDICARE BENEFICIARIES: A REGRESSION DISCONTINUITY APPROACH
Version of Record online: 25 JAN 2012
Copyright © 2012 John Wiley & Sons, Ltd.
Volume 22, Issue 1, pages 35–51, January 2013
How to Cite
Buchmueller, T. C., Grazier, K., Hirth, R. A. and Okeke, E. N. (2013), THE PRICE SENSITIVITY OF MEDICARE BENEFICIARIES: A REGRESSION DISCONTINUITY APPROACH. Health Econ., 22: 35–51. doi: 10.1002/hec.1814
- Issue online: 4 DEC 2012
- Version of Record online: 25 JAN 2012
- Manuscript Accepted: 21 OCT 2011
- Manuscript Revised: 28 AUG 2011
- Manuscript Received: 21 OCT 2010
- health insurance;
- managed competition;
- demand elasticity
We use 4 years of data from the retiree health benefits program of the University of Michigan to estimate the effect of price on the health plan choices of Medicare beneficiaries. During the period of our analysis, changes in the University's premium contribution rules led to substantial price changes. A key feature of this ‘natural experiment’ is that individuals who had retired before a certain date were exempted from having to pay any premium contributions. This ‘grandfathering’ creates quasi-experimental variation that is ideal for estimating the effect of price. Using regression discontinuity methods, we compare the plan choices of individuals who retired just after the grandfathering cutoff date and were therefore exposed to significant price changes to the choices of a ‘control group’ of individuals who retired just before that date and therefore did not experience the price changes. The results indicate a statistically significant effect of price, with a $10 increase in monthly premium contributions leading to a 2 to 3 percentage point decrease in a plan's market share. Copyright © 2012 John Wiley & Sons, Ltd.