Analysis of the Variation in Efficiency of Medicare Advantage Plans

The Affordable Care Act has altered payment policy for private Medicare Advantage (MA) plans, with the goal of lowering costs to bring them closer to the costs of traditional Medicare. Using new information on 2009 MA costs, an issue brief compares plans’ estimates of per capita costs for providing Parts A and B benefits to their enrollees, on a risk-adjusted basis, against government data on the same costs for traditional Medicare program beneficiaries in the same county. On average, risk-adjusted MA plan costs were 4 percent higher than traditional Medicare costs (104 percent). Among plan types, only HMOs had lower average costs than traditional Medicare. The wide variation in costs for MA plans relative to those for traditional Medicare suggests room for greater efficiency in care delivery.