Do Medicare Advantage Provider Networks Change the Way Beneficiaries Use Health Care?

More than half of Medicare beneficiaries are enrolled in Medicare Advantage. These plans feature limited networks and out-of-network care that is typically subject to higher cost sharing than in-network care. Concerns have emerged that narrow network plans in Medicare Advantage may be inadequate, especially for individuals with complex health needs, and that, in turn, this may cause sicker people who incur higher health care costs to disproportionately enroll in traditional Medicare.

In a recent study, we used a natural experiment to study two questions: Do Medicare Advantage provider networks change utilization patterns? That is, if out-of-network care was subsidized to some extent, would people choose to go out-of-network? And do limited networks influence the types of enrollees who choose either Medicare Advantage or traditional Medicare?

We looked at Medicare Cost Plans — these plans were authorized by Section 1876 of the Social Security Act, a different section from Medicare Advantage plans, and are Medicare plans offered by private insurers for which out-of-network care is covered through traditional Medicare. Many of these plans were discontinued by the Centers for Medicare and Medicaid Services in 2019, resulting in enrollees at that time choosing between Medicare Advantage plans or traditional Medicare. We used administrative Medicare enrollment and traditional Medicare claims data to identify 2018 enrollees of discontinued plans, their out-of-network utilization in 2018, and their subsequent enrollment decisions in 2019.

Beneficiaries Use Out-of-Network Care Frequently When Covered at Similar Rates to In-Network Care

Medicare Cost Plan enrollees frequently utilized many types of care out of network, suggesting that Medicare Advantage enrollees would use out-of-network care if it were covered similarly to in-network care. Nearly 70 percent of Cost Plan enrollees used care out of network in 2018 for nonemergency-related services. Further, this out-of-network utilization wasn’t exclusively restricted to severe acute conditions but included primary care and different types of specialist care.

Sicker Individuals Value Broad Networks

Our results suggest that broad networks may be particularly desirable for sicker individuals. We assign each individual in our sample with a risk score, which is used to characterize an individual’s relative expected medical costs based on past diagnoses. Among Cost Plan enrollees, out-of-network utilization was highest among those whose risk scores were higher and who had more diagnoses and higher expected costs.

Further, among the Cost Plan enrollees whose plans were discontinued in 2019, higher-risk individuals, compared to lower-risk individuals, were significantly more likely to enroll in traditional Medicare than Medicare Advantage plans. Unlike most people who switch from Medicare Advantage plans to traditional Medicare, beneficiaries in discontinued Cost Plans had guaranteed issue rights for Medigap, meaning they could not be denied coverage or charged a higher premium from a Medigap plan based on their health status. This may have increased the share of people choosing traditional Medicare. These findings suggest that higher-risk individuals have a stronger preference for broad network options, as in traditional Medicare, compared to lower-risk individuals.

The Big Picture

The broad use of out-of-network care by Medicare Cost Plan enrollees suggests that Medicare Advantage plans with narrow provider networks meaningfully change the way beneficiaries use care. The influence of networks can be reduced by weakening the financial incentive for beneficiaries to avoid out-of-network care, which in turn can help facilitate access to needed care. For example, there are currently limits on out-of-network provider prices for Medicare Advantage enrollees; policymakers could consider cost-sharing maximums for out-of-network care. Our results suggest that such policies may result in increased out-of-network use for many types of care. This may benefit enrollees but may also limit the ability of plans to steer patients to higher-quality or lower-cost providers or negotiate lower provider prices.

Our findings suggest that policies that affect Medicare Advantage provider networks or encourage Medicare Advantage enrollees to actively evaluate and choose between insurance plans rather than just default to their current plan can affect whether people switch from Medicare Advantage to traditional Medicare. MedPAC’s March 2024 report suggests that so-called favorable selection of healthier individuals into Medicare Advantage results in overpayments to Medicare Advantage plans. Policies that encourage broader networks in Medicare Advantage could encourage sicker beneficiaries to choose Medicare Advantage rather than traditional Medicare. Conversely, while most Medicare Advantage beneficiaries tend to stay in their plans, reforms that improve the ways beneficiaries compare options and encourage them to actively make reenrollment decisions rather than default to their existing plans might result in some beneficiaries switching to plans that better suit their needs. However, doing so would also likely lead to more higher-risk beneficiaries choosing traditional Medicare than currently do. This pattern could lead to increased Medicare program spending, depending on these individuals’ costs under traditional Medicare relative to payments to Medicare Advantage plans.