Most health insurance uses cost-sharing to reduce excess utilization. Supplemental insurance can blunt the impact of this cost-sharing, increasing utilization and exerting a negative externality on the primary insurer. This paper estimates the effect of private Medigap supplemental insurance on public Medicare spending using Medigap premium discontinuities in local medical markets that span state boundaries. Using administrative data on the universe of Medicare beneficiaries, we estimate that Medigap increases an individual's Medicare spending by 22.2 percent. We calculate that a 15 percent tax on Medigap premiums generates savings of $12.9 billion annually with a standard error of $4.9 billion.
Cabral, Marika, and Neale Mahoney.
"Externalities and Taxation of Supplemental Insurance: A Study of Medicare and Medigap."
American Economic Journal: Applied Economics,
Insurance; Insurance Companies; Actuarial Studies
Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
National Government Expenditures and Health
Health Insurance, Public and Private
Economics of the Elderly; Economics of the Handicapped; Non-labor Market Discrimination