Adverse and Advantageous Selection in the Medicare Supplemental Market: A Bayesian Analysis of Prescription drug Expenditure

Abstract

This paper develops an extended specification of the two-part model, which controls for unobservable self-selection and heterogeneity of health insurance, and analyzes the impact of Medicare supplemental plans on the prescription drug expenditure of the elderly, using a linked data set based on the Medicare Current Beneficiary Survey data for 2003-2004. The econometric analysis is conducted using a Bayesian econometric framework. We estimate the treatment effects for different counterfactuals and find significant evidence of endogeneity in plan choice and the presence of both adverse and advantageous selections in the supplemental insurance market. The average incentive effect is estimated to be $757 (2004 value) or 41% increase per person per year for the elderly enrolled in supplemental plans with drug coverage against the Medicare fee-for-service counterfactual and is $350 or 21% against the supplemental plans without drug coverage counterfactual. The incentive effect varies by different sources of drug coverage: highest for employer-sponsored insurance plans, followed by Medigap and managed medicare plans.

The Impact of Community Based Health Insurance Schemes on Out-of-Pocket Healthcare Spending: Evidence from Rwanda

“…The popular and simpler approach is to use Bayes factor calculated using Savage-Dickey density ratio or Gelfrand-Dey approaches. Since the standard TPM is nested in the ETPM, we use the Savage-Dickey density ratio approach, which is simple and appropriate for nested models (Deb, Munkin, and Trivedi, 2006;Li and Trivedi, 2014). We are interested to test the null hypothesis that CBHI enrollment is exogenous ( 0 : = = 0).…”

“…The idea is to include exogenous variable(s) which affect(s) CBHI enrollment but not correlated with out-of-pocket expenditure. Such approach is sufficient to identify model parameters and is commonly applied in the literature (Deb, Munkin, andTrivedi, 2006, Li andTobias, 2011;Kean and Stavrunova, 2014;Munkin and Trivedi, 2010;Li and Trivedi, 2014).…”

Do Robotic Surgical Systems Improve Profit Margins? A Cross-Sectional Analysis of California Hospitals

“…This can be done by incorporating hospital-specific random effects to an endogenous two-part model; as demonstrated in a recent publication by Li and Trivedi. (16) Candidate instrumental variables may include lagged financial performance information or the number of new equipment acquired during the last recession (to signal strong preference of new technology) obtained from prior years of OSHPD data. Lastly, due to the small number of hospitals with robotic ownership in our cross-sectional data, we were not able to further differentiate the difference in hospital profit margins between early adopters and late comers of this new technology.…”

Consumer finance/household finance: the definition and scope

“…The concept of advantageous selection continues to receive support from recent research. Using a linked data set based on the Medicare Current Beneficiary Survey data for 2003–2004, Li and Trivedi (2016) conducted analyses using a Bayesian econometric framework and the presence of both adverse and advantageous selections in the supplemental insurance market. Corea (2017) shows that in some European insurance markets, the low-risk profile agents buy more insurance, supporting the concept of advantageous selection.…”