A new working paper on the effects of Medigap on total per-person spending over the period 1999 to 2012 confirms what many other prior studies have shown, which is that Medigap drives up costs and service use. According to the study’s authors, those enrolled in Medigap plans incurred $2300 more in annual per person costs (in 2014 dollars) compared to similarly situated FFS enrollees who did not have supplemental insurance. Medicare’s added costs were $400 per person per year….
The authors conclude that the most likely explanation is that lowering the price of medical services to zero (or near zero) induces more demand. It is a commonsense interpretation. Patients will opt to get more services, and the clinicians taking care of them will be more inclined to offer them too, if insurance is paying the entire bill.
Source: James Capretta, AEI