Do Medicare Advantage Plans Respond to Payment Changes? A Look at the Data from 2009 to 2014

Abstract

Issue: Medicare Advantage (MA) enrollment has grown significantly since 2009, despite legislation that reduced what Medicare pays these plans to provide care to enrollees. MA payments, on average, now approach parity with costs in traditional Medicare.

Goal: Examine changes in per enrollee costs between 2009 and 2014 to better understand how MA plans have continued to thrive even as payments decreased.

Methods: Analysis of Medicare data on MA plan bids, net of rebates.

Findings: While spending per beneficiary in traditional Medicare rose 5.0 percent between 2009 and 2014, MA payment benchmarks rose 1.5 percent and payment to plans decreased by 0.7 percent. Plans' expected per enrollee costs grew 2.6 percent. Plans where payment rates decreased generally had slower growth in their expected costs. HMOs, which saw their payments decline the most, had the slowest expected cost growth.

Conclusions: In general, MA plans responded to lower payment by containing costs. By preserving most of the margin between Medicare payments and their bids in the form of rebates, they could continue to offer additional benefits to attract enrollees. The magnitude of this response varied by geographic area and plan type. Despite this slower growth in expected per enrollee costs, greater efficiencies by MA plans may still be achievable.