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relied on natural experiments related to some change in public policy (e.g., Gruber and Poterba

1994).

E. DEMAND IN PUBLIC PROGRAMS

Few studies have attempted to estimate the price elasticity of demand for coverage in public

programs, largely because premiums are typically not charged or they are very low. However,

greater use of premiums in public programs is emerging. For example, Medicare Advantage

(formerly Medicare+Choice) plans may charge premiums, and some State Children’s Health

Insurance

Programs

(SCHIP)

charge

modest

premiums.

Since

public

programs

generally

provide health care coverage to vulnerable populations—such as the elderly, children, disabled

adults, and low-income families—understanding how they will respond to a change in price is

extremely important in avoiding disruptions in coverage and access to medical care.

1.

Medicare

We found just one study that used person-level data to estimate premium and benefit

elasticities with respect to health plan choice in the Medicare program (Atherly et al. 2004). This

study combined observations from the Medicare Current Beneficiary Survey with Medicare

Compare plan data to estimate the effect of benefits, premiums, and health risk on beneficiaries’

selection of an M+C plan versus fee-for-service (FFS) Medicare, as well as the selection among

competing M+C plans. The study estimated an out-of-pocket premium elasticity of –0.134—that

is, a $10 increase in premium was associated with a 0.62 percentage points drop in a plan’s

market share. Most of this response was attributed to switching among M+C plans (-0.12), not

switching to FFS (-0.01). This elasticity is within the range of those estimated in the private

market. However, the authors noted that their estimate was based on a fairly small range of

premiums and may not be generalized to benefit packages substantively different from the ones

observed in the study.

28

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