By Alice Burns and Tamara Hayford (both of CBO)
Medicare beneficiaries may receive services through a traditional fee-for-service (FFS) program or they may enroll in Medicare Advantage (MA), under which they select a private health insurance plan. Medicare pays the MA plan to provide beneficiaries’ health care services. Medicare adjusts payments to MA plans based on beneficiaries’ demographic characteristics and documented health conditions: those traits are summarized in a risk score that estimates the relationship between beneficiary characteristics and FFS Medicare spending. Recent literature finds that health conditions are documented more thoroughly for MA enrollees than for FFS beneficiaries. As a result, beneficiaries enrolled in MA plans are assigned higher risk scores than identical beneficiaries in the FFS program, prompting concerns that Medicare is overpaying MA plans. This paper explores the mechanisms contributing to differences in MA and FFS risk scores.
Using Medicare administrative data from 2008–2013, we employ a difference-in-differences model to compare the growth in risk scores of Medicare beneficiaries who switch from FFS to MA (switchers) to the risk-score growth of beneficiaries who remain in FFS (stayers). We find that the risk scores of switchers grew faster than those of stayers, and the effect of MA enrollment on risk scores rose from a 5.0 percent increase in 2009 to an 8.3 percent increase in 2012. Risk scores for MA enrollees who stayed with the same insurer increased an additional 1.5 percent for each continuous year of enrollment. This model suggests that over time, the effects of MA enrollment on risk scores increased for all beneficiaries regardless of the duration of enrollment with a particular insurer. However, risk scores also increased more for beneficiaries who remained with the same insurer. For example, among beneficiaries who switched MA plans in 2009 but remained with the same insurer, continuous enrollment with that insurer accounted for 18.3 percent of risk score growth in 2010 and 34.7 percent of risk score growth in 2012. That finding may suggest a competitive advantage for established MA plans if those plans receive higher payments than new entrants for serving similar beneficiaries.