The Comparative Advantage of Medicare Advantage

Area of Science:

• Health Economics
• Health Services Research
• Public Health Policy

Background:

• Medicare Advantage (MA) is a growing alternative to traditional Medicare (TM).
• Understanding selection behavior in MA is crucial for assessing market efficiency and equity.
• Hierarchical Condition Category (HCC) coding is used for risk adjustment in Medicare.

Purpose of the Study:

• To quantify service-level selection in Medicare Advantage.
• To examine the relationship between HCC coding intensity and beneficiary distribution.
• To explore the role of diagnosis-specific margins and technical efficiency in selection.

Main Methods:

• Analysis of individual-level data from two national insurers (2012-2013).
• Focus on the 100 most frequent HCCs or combinations of HCCs.
• Comparison of beneficiary distribution across HCCs between MA and TM.

Main Results:

• MA plans had a smaller share of enrollees with no coded HCC, suggesting higher coding intensity.
• Absolute differences in beneficiary shares for individuals with HCC codes were small, indicating limited service-level selection.
• HCC margins did not predict differences in MA vs. TM enrollee shares.
• Margins were negatively associated with post-acute care and larger for chronic diseases managed by primary care.

Conclusions:

• Service-level selection in Medicare Advantage appears minimal based on HCC distribution.
• Differences in coding intensity exist between MA and TM.
• Variations in technical efficiency by diagnosis may influence selection and could be welfare-enhancing.