The Effects of Contract Cancellation on Health Insurance Generosity in Medicare Advantage
Treating the cancellation of these plans as a shock to competition, I test for a relationship between the size of the shock and changes in benefit generosity. Plan generosity is measured using expected beneficiary out-of-pocket costs (OOPC), which are calculated on behalf of Medicare as a summary measure of generosity. These measures are constructed by applying each plan’s cost sharing rules to a fixed basket of consumption for a representative Medicare cohort, and are, by construction, invariant to selection and moral hazard.
Preliminary results indicate that contract cancellation is associated with an overall increase in cost-sharing (reduction in generosity). For a plan in the average county in my sample, expected beneficiary out-of-pocket costs (OOPC), or the portion of cost-sharing a beneficiary is responsible for, increased by about $13 per-member-per-month. Markets where cancelled contracts had larger market shares experienced greater increases in expected OOPC, with the top decile experiencing increases in OOPC of $55 per-member-per-month. Future analysis will test for effects of exit on specific benefits and assess competing explanations for the observed response.