Growing divergence between Medicare Advantage plan bids and payments to plans

Area of Science:

• Health economics
• Public health policy
• Medicare program analysis

Background:

• Growing enrollment and costs in Medicare Advantage (MA) raise concerns about federal payment levels.
• Estimates indicate MA plans received up to 6% more per enrollee than traditional Medicare (TM) in 2023.
• Understanding payment dynamics is crucial for fiscal sustainability.

Purpose of the Study:

• To evaluate factors driving Medicare Advantage overpayments.
• To characterize trends in MA benchmarks, bids, and total payments from pre-Affordable Care Act (pre-ACA) to 2023.
• To identify policy implications for MA payment structures.

Main Methods:

• Analysis of trends in MA benchmarks, bids, and total payments.
• Decomposition of MA payment formula components.
• Examination of factors including risk adjustment, quality bonuses, and quartile spending adjustments.

Main Results:

• Despite decreasing risk-adjusted bids relative to TM costs, total MA payments have increased since 2015.
• Divergent trends in benchmarks and bids are influenced by payment adjustments.
• Quality bonuses, risk adjustment, and quartile spending adjustments contribute to payment increases.

Conclusions:

• Current Medicare Advantage payment rules contribute to federal overpayments.
• Policy reforms may be necessary to address identified payment inefficiencies.
• Further research into MA payment mechanisms is warranted.