Getting What We Pay For: How Do Risk-Based Payments to Medicare Advantage Plans Compare with Alternative Measures of Beneficiary Health Risk?

Objective: To estimate the relative health risk of Medicare Advantage (MA) beneficiaries compared to those in Traditional Medicare (TM).

Data Sources/study Setting: Medicare claims and enrollment records for the sample of beneficiaries enrolled in Part D between 2008 and 2015.

Study Design: We assigned therapeutic classes to Medicare beneficiaries based on their prescription drug utilization. We then regressed nondrug health spending for TM beneficiaries in 2015 on demographic and therapeutic class identifiers for 2014 and used coefficients from this regression to predict relative risk of both MA and TM beneficiaries.

Principal Findings: Based on prescription drug utilization data, beneficiaries enrolled in MA in 2015 had 6.9 percent lower health risk than beneficiaries in TM, but differences based on coded diagnoses suggested MA beneficiaries were 6.2 percent higher risk. The relative health risk based on drug usage of MA beneficiaries compared to those in TM increased by 3.4 p.p. from 2008 to 2015, while the relative risk using diagnoses increased 9.8 p.p.

Conclusions: Our results add to a growing body of evidence suggesting MA receives favorable, or, at worst, neutral selection. If MA beneficiaries are no healthier and no sicker than similar beneficiaries in TM, then payments to MA plans exceed what is warranted based on their health status.