The effect of Medicare supplemental insurance on Medicare expenditures

Abstract

This study estimated the effect of Medicare supplemental insurance plans on Medicare expenditures, controlling for unobserved selection. For employer-sponsored policies, there was significant unobserved favorable selection into plans with and without prescription drug coverage. For individual plans, there was unobserved adverse selection into plans with drug benefits and unobserved favorable selection into plans without. Individual supplemental plans without prescription drugs increased Medicare expenditures by $914 annually, while those with drugs increased Medicare expenditures by $491. Employer policies also significantly increased Medicare expenditures ($207 without drug coverage and $447 with drug coverage), but the increase was less than that associated with individual policies.