The effect of benefits, premiums, and health risk on health plan choice in the Medicare program

Objective. To estimate the effect of Medicare+Choice (M+C) plan premiums and benefits and individual beneficiary characteristics on the probability of enrollment in a Medicare+Choice plan. Data Source. Individual data from the Medicare Current Beneficiary Survey were combined with plan-level data from Medicare Compare. Study Design. Health plan choices, including the Medicare+Choice/Fee-for-Service decision and the choice of plan within the M+C sector, were modeled using limited information maximum likelihood nested logit. Principal Findings. Premiums have a significant effect on plan selection, with an estimated out-of-pocket premium elasticity of -0.134 and an insurer-perspective elasticity of -4.57. Beneficiaries are responsive to plan characteristics, with prescription drug benefits having the largest marginal effect. Sicker beneficiaries were more likely to choose plans with drug benefits and diabetics were more likely to pick plans with vision coverage. Conclusions. Plan characteristics significantly impact beneficiaries' decisions to enroll in Medicare M+C plans and individuals sort themselves systematically into plans based on individual characteristics.