CBO’s Medicare Beneficiary Cost-Sharing Model: A Technical Description: Working Paper 2019-08

By Noelia Duchovny, Jamease Kowalczyk, Scott Laughery, and Sarah Sajewski

CBO uses a microsimulation model to estimate the federal budgetary effects of proposed changes to the cost-sharing structure of the Medicare fee-for-service (FFS) program and proposed changes to medigap policies that cover most or all of Medicare’s cost sharing. This paper describes the model and the types of analyses it can support. CBO constructed the model using administrative data on enrollment, utilization, and Medicare spending for a large sample of Medicare FFS beneficiaries. The agency used survey data to impute measures of supplemental insurance coverage for the sample. Based on findings from the research literature, CBO uses the model to simulate changes to beneficiaries’ total spending on Medicare services in response to changes in their cost-sharing requirements. Those behavioral responses are incorporated in the estimates of the federal budgetary effects of proposed legislation. In addition to estimating effects on Medicare FFS spending, CBO uses the model to estimate other federal budgetary effects that result from interactions between Medicare FFS spending and receipts from Medicare Part B premiums and spending on other federal programs. The paper presents an analysis of an illustrative option for changing Medicare’s cost-sharing structure to demonstrate the output generated by the model, including estimates of how changes in Medicare spending and beneficiaries’ out-of-pocket spending vary across beneficiaries.