How Medicare Advantage Enrollment Affects Spending in Traditional Medicare: Spillovers and Implications for MA...

Arguably, the most pressing issues in Medicare financing today center on Medicare Advantage (MA). Rising MA enrollment may lower TM spending via a spillover effect wherein cost-efficient practices in MA are applied to TM enrollees. At the same time, growing MA enrollment results in a shrinking share of TM enrollees, raising concerns about how MA plans are reimbursed, since MA payments and rebates depend, in part, on average TM spending.

This study estimates the effect of MA enrollment shares on per-enrollee TM spending using county-level CMS data. TM spending is the product of three factors: a local price index for TM services, average price- and risk-adjusted spending per enrollee ("quantity" of services used), and average TM risk scores. We estimate the effect of MA enrollment shares on each factor.

Increased MA enrollment is associated with a statistically significant reduction in TM price- and risk-adjusted spending. MA enrollment is linked to reduced outpatient service use and reduced use of procedures, tests, imaging, durable medical equipment, and ambulance services among TM enrollees.

Reduced spending in TM from rising MA enrollment is a form of Medicare savings that offsets, to a small degree, the substantial estimated overpayments made to MA plans.