Late Enrollment Penalties, Medicare Enrollment and Medicare Costs of Older Americans

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by Yuanyuan Deng, State University of New York at Stony Brook

Individuals pay premium penalties if they delay Medicare enrollment beyond the initial enrollment period. The likely rationale behind the Medicare late enrollment penalties is to prevent individuals from generating higher Medicare costs if they delay their Medicare enrollment and their health deteriorates, or to prevent adverse selection, which occurs when those more likely to need the coverage are the individuals more likely to enroll in a given health insurance system. However, some of my previous research shows that individuals who delay their Medicare enrollment are actually generating savings to the Medicare system during the years in which they are not enrolled, as long as delayed enrollment doesn’t affect Medicare costs conditional on health status.

This paper provides an empirical analysis on how Medicare costs and Medicare enrollment behavior would be affected if Medicare late enrollment penalties are modified, both the amount and the duration of the surcharge. For this study, I use data from the Medicare Current Beneficiary Survey during 1992-2013, which has information on individual level Medicare expenditures, health insurance premiums, Medicare enrollment information, and low-income subsidy status. I propose to estimate a life cycle model of labor supply and Medicare enrollment decisions, which accounts for Medicare late enrollment penalties, uncertain medical expenses, health insurance coverage, and Social Security low-income subsidy for Medicare Part D.

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