Favorable selection, risk adjustment, and the Medicare Advantage program

Area of Science:

• Health Economics
• Public Policy
• Health Services Research

Background:

• Medicare Advantage (MA) plans are an alternative to traditional Medicare.
• Payment policies and risk adjustment mechanisms significantly influence MA plan operations and beneficiary choices.

Purpose of the Study:

• To evaluate how changes in Medicare Advantage payment and risk adjustment policies affected beneficiary enrollment and switching behavior.
• To assess the impact of these policy changes on the relative costliness of individuals enrolling in or disenrolling from MA plans.

Main Methods:

• Utilized national Medicare claims data (5% longitudinal sample) from 1999-2008.
• Employed retrospective, fixed-effects regression analysis to examine enrollment, disenrollment, and switching patterns.
• Analyzed the costliness of MA enrollees and disenrollees relative to non-switchers.

Main Results:

• Increased payment generosity and enhanced risk adjustment correlated with higher MA enrollment and reduced disenrollment rates.
• Beneficiary claims experience upon entering MA remained unaffected by policy reforms.
• Disenrollment increasingly involved higher-cost beneficiaries following policy changes.

Conclusions:

• Medicare Advantage enrollment levels demonstrate high sensitivity to payment rates.
• Advanced risk adjustment did not alter favorable selection into MA but influenced the costliness of disenrollees.