Half of US Medicare beneficiaries are now enrolled in Medicare Advantage (MA)-a share that is expected to exceed 60% by 2032. 1 Despite the increasing importance of MA for policy makers and the delivery system, the effect of payment policy on plans and beneficiaries remains relatively understudied. More evidence is needed to better understand the effects of potential federal efforts to slow MA payments, such as recent regulations to curtail incentives for MA coding intensity, which tend to generate substantial controversy. 2 This type of controversy will likely intensify, as efforts to slow Medicare spending increasingly consider or involve MA.
MA Payment SystemMedicare Advantage is a publicly financed, privately administered arm of the Medicare program. Key policy issues in MA can be contextualized within a 4-step process (Figure 3-5 ). First, the Centers for Medicare & Medicaid Services (CMS) publishes a benchmark payment rate for each county-an amount that CMS is willing to pay a private plan for enrolling a beneficiary of average risk. This key element of plan payments can be thought of as an offer, an upper limit on the government's defined contribution, reflecting what the government estimates a private plan would need to take care of a beneficiary of average risk. Second, each MA plan chooses the counties it would like to offer coverage in and submits a plan-level bid to CMS for those counties. This bid is a counteroffer-the amount that the plan thinks it needs to take care of a beneficiary of average risk across those counties.Third, CMS compares the plan's bid to the benchmarks in those counties and determines the final plan payment. If the bid exceeds the benchmark, CMS pays the benchmark, and plans would need to ask for the difference from beneficiaries through a monthly premium. But if the bid is below the benchmark, CMS pays plans their bid along with a rebate-a bonus that plans can use to offer additional benefits (eg, vision, dental, hearing coverage) or buy down a beneficiary's cost sharing or premiums. This rebate, boosting plan generosity, is a proportion of the difference between the bid and the benchmark, with the exact percentage (50%-70%) determined by the plan's quality (star) rating. Thus, for a given plan, the lower its bid, the larger its rebate. The larger its rebate, the more attractive it can be for enrollees. Finally, in step 4, Medicare beneficiaries make enrollment decisions among plans in their county and the traditional Medicare option.