The financial implications of selective disenrollment from Medicare advantage

Prior studies show that beneficiaries with relatively high health needs are more likely to disenroll from Medicare Advantage (MA) and return to Traditional Medicare (TM). However, the financial implications for MA plans of selective disenrollment have not been quantified.

We calculated annual disenrollment rates from MA to TM, and compared TM spending in months 1-12 and 13-24 following disenrollment with the expected capitation payments that MA plans would have received.

For 2019 disenrollees, TM spending in the first 12 months following disenrollment averaged 30% higher than the expected MA capitation. However, disenrollment was relatively rare-1.7% of MA members in 2019, much lower than the 4.3% in 2007, and declining further to 1.2% in 2022. Because disenrollment is rare, its effect on plan finances is limited, increasing spending on MA by approximately 0.6%.

Although the effect of selective disenrollment on plan finances is limited, the consistent direction and magnitude of selection suggest that a measured policy response is warranted.