Capturing and harvesting in Medicare Advantage plan design

Area of Science:

• Health Economics
• Market Behavior Analysis
• Insurance Market Dynamics

Background:

• Consumer inertia, driven by provider relationships and switching costs, is prevalent in health insurance markets.
• In markets with inertia, suppliers often adjust pricing based on market share, lowering prices to gain share and raising them to profit.

Purpose of the Study:

• To investigate whether Medicare Advantage (MA) plan sponsors employ market-share-based pricing strategies.
• To analyze the relationship between changes in MA plan market share and subsequent adjustments in plan financial terms.

Main Methods:

• Utilized a first-difference model with fixed effects to analyze data from 2007 to 2021.
• Examined how MA plan sponsors altered premiums, copays, and out-of-pocket limits in response to market share fluctuations.

Main Results:

• Found significant evidence that MA plans increase premiums, copays, and out-of-pocket limits as their market share grows.
• Quantified that a 1% increase in market share is associated with a subsequent 1% increase in plan sponsors' out-of-pocket costs.

Conclusions:

• Medicare Advantage plan sponsors appear to leverage market share gains to increase costs for consumers.
• The findings suggest that market power influences pricing strategies in the MA market, potentially increasing financial burdens for beneficiaries.