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VOLUME 48 | NUMBER 3 | JUNE 2013


Favorable Selection, Risk Adjustment, and the Medicare Advantage Program

Keywords: Medicare advantage; payment; risk adjustment; hierarchical condition categories

Objectives: To examine the effects of changes in payment and risk adjustment on (1) the annual enrollment and switching behavior of Medicare Advantage (MA) beneficiaries, and (2) the relative costliness of MA enrollees and disenrollees.

Data: From 1999 through 2008 national Medicare claims data from the 5 percent longitudinal sample of Parts A and B expenditures.

Study Design: Retrospective, fixed effects regression analysis of July enrollment and year-long switching into and out of MA. Similar regression analysis of the costliness of those switching into (out of) MA in the 6 months prior to enrollment (after disenrollment) relative to nonswitchers in the same county over the same period.

Findings: Payment generosity and more sophisticated risk adjustment were associated with substantial increases in MA enrollment and decreases in disenrollment. Claims experience of those newly switching into MA was not affected by any of the policy reforms, but disenrollment became increasingly concentrated among high-cost beneficiaries.

Conclusions: Enrollment is very sensitive to payment levels. The use of more sophisticated risk adjustment did not alter favorable selection into MA, but it did affect the costliness of disenrollees.

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