Medicare Advantage: Regulated Competition in the Shadow of a Public Option

Medicare Advantage, the private option for Medicare beneficiaries in the U.S., is one of the largest individual health insurance markets in the world, now enrolling more than 19 million Medicare beneficiaries and paying more than $200 billion to competing private health plans. Payments to health plan are based on plan bids and regional cost estimates, and are risk adjusted on a prospective basis. Improvement in the risk adjustment model and limitations on beneficiary choice have reduced favorable selection into Medicare Advantage. Overall, the quality of care in Medicare advantage is comparable to traditional Medicare and costs are lower. Ongoing issues include rules for setting the premium to beneficiaries, determination of the overall subsidy to MA plans, upcoding, and maintaining sufficient competition among Medicare Advantage plans.