Public vs. Private Provision of Health Insurance: The Case of Medicare Advantage

We ask whether the private sector can provide health insurance more efficiently than the public sector and how the rents from any potential efficiency gains are shared between providers and patients. Specifically, we compare health care utilization and spending – both in aggregate and for detailed sub-categories – for individuals in privately-provided Medicare Advantage plans (MA) and observably similar individuals in Traditional, Fee for Service public Medicare (TM).  Our preliminary results suggest 15 percent lower spending per beneficiary in MA compared to TM.  Prices to healthcare providers appear slightly lower in MA, but the bulk of the spending reduction reflects lower quantity of healthcare services. Lower utilization for MA beneficiaries is a consistent feature in virtually all detailed sub-categories of healthcare use, with the notable exception of outpatient surgery; MA beneficiaries appear to use more outpatient surgery than TM beneficiaries, suggesting a potential source of spending reductions coming from substitution from more costly inpatient procedures to less costly outpatient ones.