NCPA - National Center for Policy Analysis

How Competition Improves Quality: The Case of Medicare Advantage

January 20, 2012

Since 2005, seniors have had the option to receive their Medicare benefits through a private plan of their choice offered under Medicare Advantage (MA).  Since that time, studies have increasingly shown that MA plans offer superior services to their participants with better health outcomes, says Kathryn Nix, a policy analyst at the Heritage Foundation.

  • Since its inception with a population of 5.3 million participants, MA plans have doubled in size and continue to grow.
  • In 2010, close to 25 percent of the Medicare population was enrolled in an MA plan.

MA plans' increasing popularity is due at least partly to their above average services to participants.  Research conducted by Niall Brennan, acting director of the Office of Policy at the Centers for Medicare and Medicaid Services (CMS), and Mark Shepard, a Harvard University Ph.D. candidate in economics, shows that, based on several widely accepted measures of quality, MA plans outperform Medicare fee for service (FFS) in offering higher quality care.

  • Brennan and Shepard looked at 11 measures of the underuse of effective care starting in 2006 (the first year data was available).
  • For eight of the 11 measures, MA performed substantially better than FFS, and it performed slightly better on a ninth.
  • Though FFS outperformed MA on the final two, both variables are newer and considered to be relatively marginal in importance to overall care.

In a follow-up study conducted by America's Health Insurance Plans, researchers studied hospital utilization rates of FFS and MA participants with diabetes or heart disease, noting that the superior health care plan would offer preventative services that would reduce hospital stays.

  • The findings showed that for diabetes patients, all of the MA plans had fewer inpatient days and readmissions than FFS.
  • The vast majority of the plans had fewer emergency room visits, fewer admissions overall, and fewer potentially avoidable admissions.
  • Though somewhat less consistent, heart disease patients followed these same trends.

Source: Kathryn Nix, "How Competition Improves Quality: The Case of Medicare Advantage," Heritage Institute, January 11, 2012.

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