New risk-adjustment system was associated with reduced favorable selection in medicare advantage

Abstract

Health plans participating in the Medicare managed care program, called Medicare Advantage since 2003, have historically attracted healthier enrollees than has the traditional fee-for-service program. Medicare Advantage plans have gained financially from this favorable risk selection since their payments have traditionally been adjusted only minimally for clinical characteristics of enrollees, causing overpayment for healthier enrollees and underpayment for sicker ones. As a result, a new risk-adjustment system was phased in from 2004 to 2007, and a lock-in provision instituted to limit midyear disenrollment by enrollees experiencing health declines whose exodus could benefit plans financially. To determine whether these reforms were associated with intended reductions in risk selection, we compared differences in self-reported health care use and health between Medicare Advantage and traditional Medicare beneficiaries before versus after these reforms were implemented. We similarly compared differences between those who switched into or out of Medicare Advantage and nonswitchers. Most differences in 2001-03 were substantially narrowed by 2006-07, suggesting reduced selection. Similar risk-adjustment methods may help reduce incentives for plans competing in health insurance exchanges and accountable care organizations to select patients with favorable clinical risks.

Exhibit 4. Differences in utilization and health between all MA and TM enrollees in 2001-03, 2004-05, and 2006-07

Source: Authors’ analysis of survey and linked Medicare enrollment data from the Medicare Current Beneficiary Survey. Notes: For each measure of utilization and health, differences between all participants enrolled in MA (continuously enrolled or switched into MA within calendar years) and all participants enrolled in traditional Medicare (continuously enrolled or switched into traditional Medicare within calendar years) are plotted by period (2001-2003, 2004-2005, and 2006-2007) with 95% confidence intervals. Estimates of relative utilization (RU) and odds ratios (OR) are presented for comparisons of utilization and health indicators, respectively, with traditional Medicare beneficiaries serving as the reference group. Statistically significant changes in group differences from 2001-2003 to 2006-2007 are noted at P<0.10(*) and P<0.05(**) levels.