Medicare Advantage

Why Medicare Advantage is thriving

In the 1990s, managed care began to take over the health care marketplace. However, backlash against managed care lead to a retrenchment in managed care in the late 1990s.  A paper by Sinaiko and Zeckhauser (2015) notes that:

After the MA-plan payment cuts imposed through the Balanced Budget Act of 1997, HMO availability dropped by nearly 50%: enrollment fell from 16% of the market in 1999 to 12% in 2002.


More recently, the Affordable Care Act also reduced payment to Medicare Advantage (MA) plans.  Nevertheless, MA enrollment has grown over the past 10 years so that by 2015, more than 3 out of every 10 Medicare patients are enrolled in Medicare Advantage.  Why is MA continuing to thrive despite these cuts?

A paper by Sinaiko and Zeckhauser (2015) proposes the following reasons:

  • Moderate cuts: Unlike the payment cuts to plans in the late 1990s, cuts in plan payments legislated in 2010 are less severe and are being phased in over time.   On net, MA plans today receive payments 6% above beneficiaries’ expected FFS cost
  • Patient experience: Medicare beneficiaries today have more experience and comfort with managed care.
  • Quality and Choice: There is vastly improved variety and quality in MA plans.  Since 2003, many plans have offered more expansive physician networks, such as preferred provider organizations (PPOs) and private FFS plans.
  • Switching cost: Cognitive biases in Medicare beneficiary decision making—including the tendency for beneficiaries to stay in their health plans over time—are likely favoring MA plans.  As many Medicare beneficiaries lower premiums above and beyond out-of-pocket dollars, MA plans began offering “offering ‘zero-premium’ plans, while introducing other revenue-enhancing and cost-saving measures, including higher cost sharing and narrower physician networks.”

Will this trend continue?  Only time will tell?



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