Study: Little Competition Found in Medicare Advantage Markets

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In 2009 alone, private health plans that enroll Medicare beneficiaries—known as Medicare Advantage (MA) plans—are being paid $11 billion more than it would cost to cover these beneficiaries in regular fee-for-service Medicare. To correct the incentives for inefficiency created by these overpayments, and to generate Medicare savings for offsetting the costs of health reform, the Obama Administration has proposed eliminating these extra payments to private insurers and instituting a competitive bidding system that pays these plans based on the bids they submit. <br /><br /> A new study published today by The Commonwealth Fund questions the degree to which firms offering MA plans actually face competition in their local markets. The report, <a href="/publications/issue-briefs/2009/aug/paying-medicare-advantage-competitive-bidding-how-much">Paying Medicare Advantage Plans by Competitive Bidding: How Much Competition Is There?</a>, finds that, in the large majority of the nation's counties, the MA market is highly concentrated—meaning there is little competition going on. Among the 100 counties with the largest numbers of Medicare beneficiaries, 73 have highly concentrated MA enrollment, indicating a low level of competition, while a high level is indicated in only three. In 33 of the 100 largest counties, a single MA firm has more than 50 percent of MA enrollees. <br /><br />
The high concentration of MA plan enrollment is likely to become more of an issue in the next few years, the authors say, as the substantial extra payments to MA plans are reduced or eliminated. Firms may choose to exit areas where they have a small number of members, further decreasing the levels of competition in those markets. <br /><br />
"Given the relative lack of competition in many markets as well as the potential impact on traditional Medicare, careful consideration should be given to a new system for setting MA plan payments," the authors say.