Externalities and Taxation of Supplemental Insurance: A Study of Medicare and Medigap
American Economic Journal: Applied Economics
vol. 11,
no. 2, April 2019
(pp. 37-73)
Abstract
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.Citation
Cabral, Marika, and Neale Mahoney. 2019. "Externalities and Taxation of Supplemental Insurance: A Study of Medicare and Medigap." American Economic Journal: Applied Economics, 11 (2): 37-73. DOI: 10.1257/app.20160350Additional Materials
JEL Classification
- G22 Insurance; Insurance Companies; Actuarial Studies
- H24 Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
- H51 National Government Expenditures and Health
- I13 Health Insurance, Public and Private
- J14 Economics of the Elderly; Economics of the Handicapped; Non-labor Market Discrimination
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