Do Medicare Advantage plans select enrollees in higher margin clinical categories?

Area of Science:

• Health Economics
• Medical Care
• Public Health

Background:

• The Medicare Advantage (MA) risk adjustment system uses Traditional Medicare (TM) spending to set payment weights for MA plans.
• Differences in treatment patterns between MA and TM may lead to variations in profitability for beneficiaries with specific characteristics.
• Understanding these differences is crucial for accurate risk adjustment and equitable plan payments.

Purpose of the Study:

• To investigate whether risk adjustment weights derived from MA spending differ from those based on TM spending.
• To analyze profit margins for different medical conditions within two MA-HMO plans.
• To assess whether beneficiary selection based on profitability (Hierarchical Condition Category - HCC) is occurring.

Main Methods:

• Compared spending data from two MA-HMO plans with TM spending data to calculate risk adjustment weights.
• Calculated profit margins (average revenue/average cost) for beneficiaries with 48 different medical condition combinations across the two plans.
• Examined the distribution of beneficiaries within high-margin HCCs in both plans and in Traditional Medicare.

Main Results:

• Risk adjustment weights calculated from MA spending significantly differed from those based on TM spending.
• Profit margins varied substantially across different medical conditions within both MA plans.
• Plans showed higher margins for conditions managed by primary care physicians and lower margins for conditions treated by specialists or acute conditions with limited management.
• Despite significant margin variations, no evidence of overrepresentation of beneficiaries in high-margin HCCs was found in either plan or in Traditional Medicare generally.
• Findings suggest potential for omitted interaction terms in Medicare's current risk adjustment model.

Conclusions:

• MA spending patterns create different risk adjustment weights compared to TM, impacting plan profitability.
• Profitability varies by condition, with primary care-managed conditions being more profitable than specialist-managed or acute conditions.
• Current risk adjustment models may not fully capture the complexities of MA plan costs and beneficiary risk.
• Further research is needed to explore the implications of these findings for Medicare policy and beneficiary outcomes.