This paper examines the impact of coverage on demand for health insurance in the Medicare Advantage (MA) insurance market. Estimating the effects of coverage on demand poses a challenge for researchers who must must consider both the hundreds of benefits that affect out-of-pocket costs (OOPC) to consumers, but also the endogeneity of coverage. These problems are addressed in a discrete choice demand model by employing a unique measure of OOPC that considers a consumer’s expected payments for a fixed bundle of health services and applying instrumental variable techniques to address potential endogneity bias. The results of the demand model show that OOPC have a significant effect on consumer surplus and that not instrumenting for OOPC results in a significant underestimate of the value of coverage.
JEL Code(s) I10 Published