Managed Care and Medicare Expenditures

This paper investigates the impact of Medicare HMO penetration on the Medicare expenditures of fee-for-service enrollees. We find evidence that increasing penetration leads to reduced spending on fee-for-service beneficiaries. In particular, we find that a one percentage point increase in Medicare HMO penetration reduces such spending by about one percent. We estimate similar models for various measures of health care utilization and find evidence of reductions, consistent with our spending estimates. Finally, we present evidence that suggests our estimated spending reductions are driven by plausibly high-use beneficiaries who have at least one chronic condition. Acknowledgements: The authors thank Kate Bundorf, Will Manning, Edward Norton and Will White as well as seminar participants at RAND, University of Pennsylvania, the 17 Annual Health Economics Conference and the NBER Summer Institute for helpful comments. Funding was provided by the Robert Wood Johnson Foundation through the Health Care Financing and Organization (HCFO) program.