The Welfare Impact of Medicare HMOs

The authors estimate the social welfare associated with the Medicare+Choice program at approximately $18.7 billion in consumer surplus and $52 billion in HMO profits from 1993 to 2000. Conservatively, the estimated total net social welfare from the M+C program is $24.8 billion. Prescription drug coverage and competition among HMOs play an important role in creating this surplus, even though generating sufficient HMO competition appears to be difficult. The article also notes that although the benefits from the M+C program are large, they are not evenly distributed across the country.