The Consequences of Health Care Privatization: Evidence from Medicare Advantage Exits

Abstract

There is considerable controversy over the use of private insurers to deliver public health insurance benefits. We investigate the consequences of patients enrolling in Medicare Advantage (MA), privately managed care organizations that compete with the traditional fee-for-service Medicare program. We use exogenous shocks to MA enrollment arising from plan exits from New York counties in the early 2000s and utilize unique data that links hospital inpatient utilization to Medicare enrollment records. We find that individuals who were forced out of MA plans due to plan exit saw very large increases in hospital utilization. These increases appear to arise through plans both limiting access to nearby hospitals and reducing elective admissions, yet they are not associated with any measurable reduction in hospital quality or patient mortality. (JEL G22, I11, I12, I13, I18)