Private Medicare plans' responses to benchmark changes and competition before and after the Affordable Care Act's payment cuts.

Objective: To examine how private Medicare Advantage (MA) plans responded to slower growth in federal payments after the Affordable Care Act (ACA).

Data sources and study setting: We used publicly available data from the Centers for Medicare and Medicaid Services on MA plan subsidies ("benchmarks"), asking prices ("bids"), plan premiums, cost-sharing, and covered benefits. Data covered all counties with MA plans between 2006 through 2019.

Study design: We examined plan responses to changes in benchmark subsidies by comparing changes in bids, rebates, and other outcomes between counties experiencing larger changes in benchmarks and counties with smaller changes, pre- and post-ACA. We used longitudinal fixed effects regression models to assess heterogeneity in how plans adjusted premiums and benefits across more and less competitive markets.

Data collection: Analyses included all counties with at least one MA plan available to individual beneficiaries. Plans targeting special populations were excluded.

Principal findings: Average plan benchmarks fell by $89 per month post-ACA, adjusted for inflation. Plans responded similarly to benchmark subsidy decreases and increases, increasing bids by 62 cents for every dollar increase in subsidies pre-ACA (95% confidence interval [CI]: 0.56 to 0.67) and decreasing them by 57 cents for every dollar reduction in subsidies post-ACA (95% CI: 0.49-0.65). However, post-ACA, plans altered less salient benefits, such as cost-sharing, by about twice as much as they had pre-ACA. Premiums changed by similar amounts before and after the ACA (-$0.07, 95% CI: from -$0.09 to -$0.06). Plans in more competitive markets responded less to payment changes than plans did in less competitive markets, suggesting the former are operating closer to marginal costs. Finally, payments to plans declined far less than projected due in part to other changes in MA policy.

Conclusions: Plans used partial pass-through of benchmark subsidy decreases to shield beneficiaries from cuts and allocated benchmark decreases to benefits that were less salient to the average enrollee. These findings, combined with higher-than-projected payments post-ACA, may explain the continued growth in MA enrollment.