Advancing the measurement of favorable selection in MA

Problem: As Medicare Advantage (MA) enrollment grows, policymakers and healthcare stakeholders are examining whether MA plans receive higher payments because beneficiaries who enroll in MA may be less costly than comparable beneficiaries in Traditional Medicare (TM). This issue, known as favorable selection, has important implications for Medicare payment policy, MA program sustainability, and public understanding of how Medicare dollars are allocated.

Measuring favorable selection is difficult because researchers cannot directly observe what MA beneficiaries would have cost had they remained in TM. Prior studies have often focused on beneficiaries who switch from TM to MA—about one-third of the MA population—and then extrapolated those findings to all MA enrollees.

Study: This study improves measurement of favorable selection by using MA encounter data to compare risk-adjusted, imputed healthcare spending between MA beneficiaries who switched from TM and those who did not. Researchers analyzed approximately 1.4 million MA beneficiaries from 2020 to 2022 and used TM claims to estimate the TM-equivalent cost of services documented in MA encounter data.

This approach offers a more direct assessment of spending differences between switchers and non-switchers, reducing reliance on external assumptions used to extrapolate results to the broader MA population.

The study estimated that favorable selection increased MA payments by 4.9% to 5.8% between 2020 and 2022, substantially lower than the study’s attempted replication of MedPAC’s estimates, which ranged from 8.2% to 8.8%. The analysis also found that age and health differences between MA switchers and non-switchers materially affected estimates of favorable selection.

Relevance to family physicians: For family physicians caring for patients enrolled in MA, this research provides useful context for understanding the policy and payment environment surrounding the program. More precise measurement of favorable selection can support better-informed discussions about MA payment policy and long-term sustainability.

The findings also underscore the importance of using comprehensive, clinically informed data to evaluate the healthcare needs and costs of diverse Medicare populations. This is especially relevant to family physicians, who provide longitudinal, comprehensive care for older adults and patients with multiple chronic or complex health needs.

About Humana

Humana is a leading health and well-being company focused on helping people achieve their best health. Through its Medicare Advantage and other healthcare offerings, Humana works with physicians, healthcare professionals and communities to improve health outcomes, support value-based care and create better experiences for the people it serves. Humana Healthcare Research conducts research designed to generate evidence and insights that can inform healthcare delivery, policy and population health.