Medicare Advantage is an alternative to fee-for-service Medicare in which beneficiaries sign up with a private health plan to receive benefits. Medicare Advantage plans typically have richer benefits, but may include more limited provider networks. The program has been extremely successful for beneficiaries and plans, enrolling over a third of all Medicare beneficiaries and leading to significant profits for participating health plans, while generally providing better quality of care. But according to a study by Leavitt Partners the ongoing trend toward health plan consolidation has impacted premiums for Medicare Advantage plans, just as it has for commercial ones. (Leavitt Partners Study) Figuring out the impact of competitive factors on MA premiums is not easy. There are two premiums; one is the amount paid by Medicare to the plan and the plan may also charge a supplementary premium to beneficiaries, but that amount is relatively small in regard to the total premium. What Medicare pays is based on a benchmark determined on a county basis using fee-for-service Medicare costs. Plans bid in regard to the benchmark. If they are low enough, some plans get a rebate, which they use for additional benefits. Bids below benchmark often result in a zero premium to beneficiaries. The competition between plans in an area is largely in a confluence of benefit richness and price, with some consideration to network composition.
In general the market for health insurance is considered concentrated in almost all US counties, with just a couple of plans having high market shares. The same is true for Medicare Advantage. Using a regression analysis, the authors compare market concentration and the premiums paid by beneficiaries for plans with similar benefits. They also considered the effect of provider concentration. Nationally MA plans had an average monthly beneficiary premium of $58 and a median premium of $44. Higher-rated plans on the stars quality system tended to charge more. Increased hospital concentration in a market was not associated with higher beneficiary premiums, perhaps because most plans pay hospitals what fee-for-service Medicare pays them, so there is little difference in plan reimbursements to hospitals. But concentration in the MA plan market was associated with premiums, and greater concentration meant higher premiums. Highly concentrated MA markets were significantly less likely to have plans with zero beneficiary premium. The least competitive MA markets, compared to the most competitive, had an average monthly beneficiary premium of $54.80 compared to $48.46, in a market with average hospital concentration. Interestingly, while hospital concentration itself was not correlated with premium, it did seem to interact with the level of MA plan concentration in a manner that tended to lessen MA premium variance as hospital concentration increased. I am at a loss to come up with a good explanation for this apparent interaction, since most research suggests little variation in prices paid to hospitals. But as with commercial insurance, it appears that the worse combination for consumers is high concentration among hospitals and health plans, which clearly leads to much higher premiums.