1. Who Belongs in Managed Care?
Using Premium Policy to Achieve an
Efficient Assignment in Medicare
Jacob Glazer
Tel Aviv University
Boston University
Thomas G. McGuire
Harvard Medical School
April 17, 2009
2. Traditional Medicare
Part Automatic Financing Coverage
Provider
Payment
A Yes Payroll tax Inpatient, Other facilities Prospective
B No Gen rev, Premiums Physicians devices Fee schedule
D No Gen rev, Premiums Drugs No controls
Notes: A, B, D all have cost sharing. Cost sharing for A and B can be avoided by
individual Medigap plans, employer-provided plans, or Medicaid.
3. Medicare Advantage
• Created by MMA (2003) to replace M+C.
• Private plans must cover A + B services, can
supplement, plans can be MA or MA-PD
• HMOs, PPOs, (13.3/17.1) Provider Sponsored
Organizations, Regional PPOs, PFFS, SNPs
• Recently recovered to 1997 enrollment pre M+C,
with growth almost all in PFFS.
• HMO premiums less than Part B amount, many
at zero.
• Medicare plan payments f(benchmark, bid, risk
adjustment) > ffs costs.
4. Single Premium and Plan Sorting
MA TM
Person Cost Value Cost Value
Smith 0 5 10 12 Smith in MA if PTM>7
Jones 0 5 8 17 Jones in TM if PTM<12
Miller 0 5 2 9 Miller in TM if PTM <4 (uh oh)
• Fully risk-adjusted incremental cost would work
• Preview of result: no single premium (no matter how set) can work, and,
cannot be corrected by plan payment policy.
5. Joining MA Among 65+ non-Medicaid
NHIS MCBS
Hispanic 0.348 (1.86) 0.555 (2.70)
Black 0.225 (1.52) 0.332 (3.26)
Health status fair 0.199 (1.27) -0.253 (3.62)
Health status poor -0.042 (0.19) -0.398 (4.11)
Income >25K -0.296 (3.30) -0.578 (14.83)
Income <25K (ref.)
Education <11 years 0.552 (3.34) 0.632 (6.15)
Balsa, Cao, McGuire (2007), other variables not shown.
T-stats in parentheses.
Minority more likely
Poor health less likely
Low SES more likely
14. Reinterpretation: An Income-Related
Premium to Join TM
Normalize the MA plan premium to zero, and charge beneficiaries to join TM.
Specifically, set the premium for TM to the rich to be
