Medicare beneficiaries choosing to enroll in an alternative health plan (AHP) must make a tradeoff between restricted choice of provider and financial incentives to enroll in the plan. This study examines this tradeoff empirically by estimating a model of beneficiary plan choice using survey data in which beneficiaries were asked to state a preference between several hypothetical AHPs and their current Medicare coverage. The results show that a substantial financial incentive is necessary to attract beneficiaries. For an incentive of a given amount, plans that provide financial protection against high-cost hospitalizations or long-term care are more attractive than plans that offer additional ambulatory benefits.
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