Socially Optimal Subsidies For Entry: The Case Of Medicare Payments To Hmos*

Publication Type:
Journal Article
International Economic Review, 2011, 52 (1), pp. 105 - 129
Issue Date:
Filename Description Size
Thumbnail2013003728OK.pdf196.02 kB
Adobe PDF
Full metadata record
The U.S. Medicare program has increased its spending on private Medicare plans in anticipation of larger consumer surplus and higher efficiency. To evaluate the welfare consequences of such policy interventions, I develop an empirical model with endogenous entry. Counterfactual simulation reveals the following: subsidizing HMO entry can be justified to enhance national welfare (no excessive entry); the level of price subsidies in 2008, however, is far beyond the optimal level; and the geographic inconsistency between the subsidies and the Medicare fee-for-service costs is another source of inefficiency. Resolving this geographic inconsistency significantly raises national welfare by restructuring entry. © (2011) by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
Please use this identifier to cite or link to this item: