Austin Frakt summarizes some recent research presented at AcademyHealth.
There are three principle MA plan types: HMOs, PPOs, and private fee for service (PFFS) plans. It’s HMOs that are lowest in cost, because they tend to offer the most restrictive networks. As Biles et al. report, based on 2012 data, HMOs have costs 7 percent below traditional Medicare on average. But PPOs’ and PFFS plans’ costs are 12-18 above those of traditional Medicare. PPO networks are less restrictive than HMOs’, and PFFS plans do not establish networks at all.
Although it looks like only certain types of Medicare Advantage (MA) plans are a good deal for CMS, there is likely significant adverse selection occuring whereby sicker patients choose PPOs and PFFS and healthier patients choose HMOs. Although plan payments are risk-adjusted, there will almost certainly be unobservable differences in patient health status across different types of MA plans and between MA plans and traditional Medicare FFS.