The effects of medicare advantage payment reductions on low income elderly medicare beneficiaries

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 DESCRIPTION (provided by applicant): The purpose of the proposed research is to estimate the effects of the reductions in government payments to Medicare Advantage (MA) plans, required by the 2010 Patient Protection and Affordable Care Act (ACA), on low-income Medicare beneficiaries. MA plans receive a monthly capitation payment from Medicare for each enrollee, adjusted for the enrollee's risk. Previous research has shown that plans respond to higher payment rates by offering enhanced benefits and/or lower out-of-pocket premiums. This is true both geographically (i.e., plans in counties with higher payment rates offer more benefits than plans in lower payment areas) and over time. The ACA substantially reduced MA plan payments, with the Congressional Budget Office (CBO) estimating that the new payment formula in the ACA will reduce MA payments by $132 billion over ten years. This will lead MA plans to reduce benefits and shift costs from the plans to beneficiaries. The policy issue is that low-income Medicare beneficiaries who are above the Medicaid (dual- eligible) threshold are a key constituency for MA plans. Low-income beneficiaries struggle to pay Medicare fee-for-service (FFS) cost sharing, which makes MA plans with enhanced benefits particularly appealing. If MA plans respond to reduced payments as they did to the payment cuts resulting from the 1997 Balanced Budget Act, they will reduce their supplementary benefits, increase out-of-pocket premiums, or withdraw from the market, potentially leading to access problems for low-income MA plan enrollees. The purpose of the proposed research is to estimate the effect of the ACA-mandated reductions in government payments to Medicare Advantage plans on low-income beneficiaries and to investigate possible policy responses to "hold them harmless" from the payment cuts. Methodologically, we will combine a number of different data sources to create a panel dataset that is nationally representative of the Medicare population. We analyze the impact of payment cuts on both beneficiary premiums and beneficiary out-of-pocket costs (OOPC); the impact of changes in premiums and OOPC on Medicare plan choice by beneficiaries; and ultimately the impact on the economic welfare of low-income beneficiaries. The results of this study will advance both the academic literature on health plan choice and provide guidance to policy- makers regarding both the impact of payment cuts on low-income beneficiaries and the cost of policy solutions to mitigate the impact.