Favorable Risk Selection in Medicare Advantage: Trends in Mortality and Plan Exits Among Nursing Home Beneficiaries

Abstract

The 2003 Medicare Modernization Act (MMA) increased payments to Medicare Advantage plans and instituted a new risk-adjustment payment model to reduce plans' incentives to enroll healthier Medicare beneficiaries and avoid those with higher costs. Whether the MMA reduced risk selection remains debatable. This study uses mortality differences, nursing home utilization, and switch rates to assess whether the MMA successfully decreased risk selection from 2000 to 2012. We found no decrease in the mortality difference or adjusted difference in nursing home use between plan beneficiaries pre- and post the MMA. Among beneficiaries with nursing home use, disenrollment from Medicare Advantage plans declined from 20% to 12%, but it remained 6 times higher than the switch rate from traditional Medicare to Medicare Advantage. These findings suggest that the MMA was not associated with reductions in favorable risk selection, as measured by mortality, nursing home use, and switch rates.

Keywords: Medicare; Medicare Advantage; Medicare Modernization Act; mortality; nursing home care; risk selection.

Figure A1

Total Medicare spending on fee-for-service beneficiaries in 2010 Note. This figure is based on a 20% random sample of Medicare beneficiaries who were enrolled in a traditional fee-for-service plan for the entirety of 2010. It includes both part A and part B spending.

Figure 1

Trends in adjusted mortality rates in traditional Medicare and Medicare Advantage, 2000-2012.

Figure 2

Adjusted difference between traditional Medicare and Medicare Advantage enrollees in the proportion that died by the end of an enrollment year. Note. Differences are estimated adjusting for age, sex, race, and county fixed effects.

Figure 3

Share of traditional Medicare and Medicare Advantage beneficiaries with a nursing home stay.

Figure 4

Adjusted difference in nursing home use rates between traditional Medicare and Medicare Advantage beneficiaries before and after the Medicare Modernization Act. Note. Differences are estimated adjusting for age, sex, race, and county fixed effects.

Figure 5

Share of traditional Medicare and Medicare Advantage beneficiaries who switched by the following year (switch rate).

Figure 6

Adjusted difference in switch rates between traditional Medicare and Medicare Advantage beneficiaries. Note. Differences are estimated adjusting for age, sex, race, and county fixed effects.