Favorable Selection, Risk Adjustment, and the Medicare Advantage Program

Objectives

To examine the effects of changes in payment and risk adjustment on (1) the annual enrollment and switching behavior of edicare dvantage () beneficiaries, and (2) the relative costliness of enrollees and disenrollees.

Data

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

Study Design

Retrospective, fixed effects regression analysis of uly enrollment and year‐long switching into and out of . Similar regression analysis of the costliness of those switching into (out of) 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 enrollment and decreases in disenrollment. Claims experience of those newly switching into 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 , but it did affect the costliness of disenrollees.