Competitive bidding in Medicare Advantage: Effect of benchmark changes on plan bids

Song, Zirui; Landrum, Mary Beth; Chernew, Michael E.

doi:10.1016/j.jhealeco.2013.09.004

Cited by 50 publications

(60 citation statements)

References 32 publications

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“…Using data from 2006-2010, Song and colleagues found that a $1 increase in the benchmark led to approximately a $0.50 increase in benefits, whereas in a perfectly competitive model it would lead to an increase equal to the amount of the rebate, which in those years would have been close to 75%. 22,23 (It would not be exactly 75% because 5% of plans bid above the benchmark and would not have offered rebates even if the benchmark had increased by a small amount. )…”

Section: Cost In Ma and Tmmentioning

confidence: 99%

“…There is evidence of market power in the MA program, either on the plan side or provider side, or both. 22,23 Furthermore, as we describe later, Medicare beneficiaries' choice of health insurance plan is typically more complicated than that for any other group in the United States. Although greater choice is often assumed to be beneficial, the complexity of Medicare's Parts C and D plan choices leads to mistakes by many beneficiaries.…”

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confidence: 99%

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How Successful Is Medicare Advantage?

2014

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Context: Medicare Part C, or Medicare Advantage (MA), now almost 30 years old, has generally been viewed as a policy disappointment. Enrollment has vacillated but has never come close to the penetration of managed care plans in the commercial insurance market or in Medicaid, and because of payment policy decisions and selection, the MA program is viewed as having added to cost rather than saving funds for the Medicare program. Recent changes in Medicare policy, including improved risk adjustment, however, may have changed this picture.Methods: This article summarizes findings from our group's work evaluating MA's recent performance and investigating payment options for improving its performance even more. We studied the behavior of both beneficiaries and plans, as well as the effects of Medicare policy. Findings:Beneficiaries make "mistakes" in their choice of MA plan options that can be explained by behavioral economics. Few beneficiaries make an active choice after they enroll in Medicare. The high prevalence of "zero-premium" plans signals inefficiency in plan design and in the market's functioning. That is, Medicare premium policies interfere with economically efficient choices. The adverse selection problem, in which healthier, lower-cost beneficiaries tend to join MA, appears much diminished. The available measures, while limited, suggest that, on average, MA plans offer care of equal or higher quality and for less cost than traditional Medicare (TM). In counties, greater MA penetration appears to improve TM's performance. Conclusions:Medicare policies regarding lock-in provisions and risk adjustment that were adopted in the mid-2000s have mitigated the adverse selection problem previously plaguing MA. On average, MA plans appear to offer higher value than TM, and positive spillovers from MA into TM imply that reimbursement should not necessarily be neutral. Policy changes in Medicare that reform

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Section: Cost In Ma and Tmmentioning

confidence: 99%

mentioning

confidence: 99%

How Successful Is Medicare Advantage?

2014

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“…If shares of all beneficiaries in a county were used as a denominator, Herfindal-index type measures of concentration would fall sharply. However, as we discuss later, several papers find evidence that demand for an MA plan is inelastic (Curto et al (2014), Song, Landrum and Chernew (2012, 2013) and Cabral, Geruso and Mahoney (2014)). Curto et al (2014) also estimated MA plans’ mark-ups and showed them to be on the order of 16% above variable costs, on average.…”

Section: Institutional Background and Literature Reviewmentioning

confidence: 92%

Paying Medicare Advantage plans: To level or tilt the playing field

Glazer

McGuire

2017

Journal of Health Economics

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Medicare beneficiaries are eligible for health insurance through the public option of traditional Medicare (TM) or may join a private Medicare Advantage (MA) plan. Both are highly subsidized but in different ways. Medicare pays for most of costs directly in TM, and makes a subsidy payment to an MA plan based on a “benchmark” for each beneficiary choosing a private plan. The level of this benchmark is arguably the most important policy decision Medicare makes about the MA program. Presently, about 30% of beneficiaries are in MA, and Medicare subsidizes MA plans more on average than TM. Many analysts recommend equalizing Medicare’s subsidy across the options – referred to in policy circles as a “level playing field.” This paper studies the normative question of how to set the level of the benchmark, applying the versatile model of plan choice developed by Einav and Finkelstein (EF) to Medicare. The EF framework implies unequal subsidies to counteract risk selection across plan types. We also study other reasons to tilt the field: the relative efficiency of MA vs. TM, market power of MA plans, and institutional features of the way Medicare determines subsidies and premiums. After review of the empirical and policy literature, we conclude that in areas where the MA market is competitive, the benchmark should be set below average costs in TM, but in areas characterized by imperfect competition in MA, it should be raised in order to offset output (enrollment) restrictions by plans with market power. We also recommend specific modifications of Medicare rules to make demand for MA more price elastic.

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“…If the insurer bids a lower price than the benchmark, the insurer can keep some of the difference to provide extra benefits to Medicare beneficiaries. Recent work finds that Medicare Advantage plans increase their bids $0.53 for every dollar the benchmark price increases (Song, Landrum, and Chernew, 2013), and other work finds that only a small amount of increased reimbursement 10 The number of ratings areas across the United States continues to be in flux as states modify their ratings areas.…”

Section: Benchmark-plan-based Approachmentioning

confidence: 99%