Has Medicare Advantage Achieved It’s Value Proposition? The Effect of Quality, Market Concentration, Potential Entrants, and Benchmarks on MA Premiums
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The Medicare Advantage (MA) program is at a pivotal crossroads; 2023 was the first year that the majority of Medicare beneficiaries chose to receive their care through the private sector with MA as opposed to traditional Fee-for-Service (FFS). This importance is further emphasized as 10,000 new Medicare beneficiaries become eligible each day. MA’s value proposition was that introducing the private sector into the Medicare program would foster competition and lead to health plans offering the best coverage at the lowest costs. MA plans would be incentivized to compete with other plans on price and benefit offerings, while also coordinating care and managing costs as this would impact their profits. The MA program has a place in the Medicare program given its potential to promote innovation and care coordination, but it must evolve to reflect the current environment. This research contributes to the literature by examining how MA aligns with its value proposition and providing a comprehensive study into the effect of quality, market concentration, potential entrants, and benchmark on MA premiums. Chapters 1 and 2 lays the foundation for the research by providing an overview of the MA program structure, current landscape, and critiques of rising costs, minimal competition, and quality. Chapter 3 uses publicly available datasets to create the market concentration (measured by Herfindahl-Hirschman Index (HHI) using two approaches: (1) enrollment and (2) net revenue) and potential entrants variables. This analysis found the MA market has remained highly concentrated during this timeframe of study (2006-2022) which aligns with previous research, and suggests contestability (measured through potential entrants) is not as much of a factor as previous research has suggested (Biles et al., 2015; Frank & McGuire, 2019). Chapter 4 studies the effect of quality, market concentration, potential entrants, and benchmark on the MA premium through Ordinary Least Squares (OLS), Generalized Linear Model (GLM), and random effects models. An increase in quality or market concentration is predicted to increase the MA premium. An increase in the benchmark is predicted to decrease the MA premium. The potential entrant variable was not consistently found to be statistically significant. The research cumulates in Chapter 5 and advocates for policy recommendations to: (1) address the growing costs of the Quality Bonus Payment (QBP) program by making it budget neutral and revising potential uses of the funding; (2) encourage competition in the MA market by developing a Center for Medicare and Medicaid Innovation (CMMI) model, and exploring best practices from the Exchanges/Marketplace that could be applied in MA; and (3) overhaul the MA benchmark methodology to reflect the true costs of offering MA and/or incorporate the bids. The findings should be considered with the utmost urgency as MA comes under scrutiny; the question is not if spending must decrease but rather when will changes take place.
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