Could Improving Choice and Competition in Medicare Advantage be the Future of Medicare?

Abstract

About 30 percent of Medicare beneficiaries enroll in private Medicare Advantage (MA) plans but do so at a relatively high-cost. This paper explores the advantages and challenges of introducing competitive bidding among MA plans (Plan One) or among MA plans and Fee-for-Service (Plan Two or Premium Support). We conclude that competitive bidding could reduce the cost of Medicare, especially in densely populated urban areas. However, there would be serious challenges in rural areas and risk adjustment methodology would have to be substantially improved. In Plan Two, sicker beneficiaries might move to Fee-for-Service and beneficiaries might have to pay more to stay with a preferred provider or broader network. If these problems are addressed, we believe that premium support can be a meaningful improvement to the MA program.