The Effects of Medicare Advantage on Healthcare Use and Patient Outcomes

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Project Summary/ Abstract A growing share of Medicare beneficiaries are enrolled in Medicare Advantage (MA) rather than traditional fee- for-service (TM) Medicare, with the MA share increasing from 13% in 2004 to 39% in 2020. The Centers for Medicare and Medicaid Services (CMS) pay MA plans a monthly capitated rate to cover nearly all health care expenses for plan enrollees. MA plans keep as profits the portion of payments that are not used to cover enrollee expenses. In addition, CMS grants MA plans greater freedom to manage enrollees’ health care use, for example, through tools such as narrow provider networks and broader coverage of delivery innovations such as telemedicine. Proponents argue that these financial incentives and effective tools for MA plans might enable them to provide care more efficiently than TM. On the other hand, these effects could be offset by financial incentives under capitation to limit service provision beyond what is necessary to improve short term health, resulting in adverse impacts on longer-term outcomes. Prior work has primarily estimated cross-sectional comparisons of TM and MA enrollees, which could lead to biased estimates if MA enrollees differ from TM enrollees in other ways that are related to health care use and health outcomes. Our proposed project will study changes in MA enrollment coming from seven states that recently changed public retiree health benefits from supplemental TM coverage to mandatory MA plans (or in one state, from a mandatory MA plan to supplemental TM coverage). We will use these natural experiments, along with comprehensive Medicare data for TM and MA enrollees, to estimate the causal impact of MA enrollment on health care use, quality, and patient outcomes. These results will provide important evidence to policymakers weighing broader expansions of Medicare Advantage.