- Research Areas
- Program Areas
Project 2 â€“ Health Plan Responses to Changes in Medicare Advantage
Michael E. Chernew, PhD, principal investigator
The Medicare Advantage (MA) program reflects the belief that a system of private, integrated health plans will expand the diversity of plan
offerings, an objective valued by many, and result in more generous benefits, lower premiums, and higher quality of care than the traditional Medicare (TM) program. Payment rates for MA plans are a primary tool used to influence these outcomes and are an important topic of debate.Â
In regulated markets the price set by the government significantly affects market outcomes. In the presence of regulated prices, firms compete through improved quality or entry, driving at least the marginal firmâ€™s average cost to the administered price. In MA, the firms are
insurers, and the relevant payment variable for policy makers is the â€śbenchmarkâ€ť payment rate set by Medicare. Medicare policy is premised on a competitive response to benchmark rates. The generosity of payment may affect the number and type of plans that participate in the MA
program, the set of benefits they offer, and perhaps the quality of care delivered. Distinct from other price regulated industries, however, MA plans can charge Medicare beneficiaries a price (premium) above the premium set by the government. Thus, in addition to competing by
offering more generous benefits or better quality, plans can also compete by lowering this premium.Â Plan decisions about premiums, benefits and quality will, in turn, influence the number of Medicare beneficiaries that enroll in MA plans and their economic and perhaps their health outcomes.Â
This project will examine the impact of Medicare payment policy on plan behavior in the environment after the Medicare Modernization Act (MMA) of 2003. We will focus on the benchmark payment rates Medicare assigns to each county. These payment rates define the level of reimbursement a plan receives from the government for a beneficiary of average risk in each county. Medicare has frequently changed the rules governing how these benchmark payment rates are set and continues to do so.Â
The MMA restructured the policy environment for MA plans, rendering past research of questionable relevance to this new setting. Specifically, the MMA expanded the number of plan options, altered the payment rates, and changed the algorithms for setting those rates. It expanded the standard benefit package to include prescription drugs, which may alter the way MA plans respond to payment changes. Furthermore, the overall rates are simply higher than in the past, which may change the nature of competition with TM or with other MA plans. Our research is intended to
contribute to the general understanding of the effect of payment policy in health care, as well as, more directly, to quantify the effects of
Medicare payment rates on the number and attributes of MA plans, particularly supplemental benefits and quality.
The specific aims of the project are to:
Assess how benchmark payment rates affect insurer
participation, plans offered, and enrollment in the MA program.
Assess how benchmark payment rates affect the benefits offered by MA plans.
Assess how benchmark payment rates affect MA plan
performance on standard quality measures.