How Medicare Advantage Enrollment Affects Spending in Traditional Medicare: Spillovers and Implications for MA Benchmarks

CONTEXT: Arguably, the most pressing issues in Medicare financing today center on Medicare Advantage (MA). Rising MA enrollment may lower TM spending via a spillover effect wherein cost-efficient practices in MA are applied to TM enrollees. At the same time, growing MA enrollment results in a shrinking share of TM enrollees, raising concerns about how MA plans are reimbursed, since MA payments and rebates depend, in part, on average TM spending. METHODS: This study estimates the effect of MA enrollment shares on per-enrollee TM spending using county-level CMS data. TM spending is the product of three factors: a local price index for TM services, average price- and risk-adjusted spending per enrollee ("quantity" of services used), and average TM risk scores. We estimate the effect of MA enrollment shares on each factor. FINDINGS: Increased MA enrollment is associated with a statistically significant reduction in TM price- and risk-adjusted spending. MA enrollment is linked to reduced outpatient service use and reduced use of procedures, tests, imaging, durable medical equipment, and ambulance services among TM enrollees. CONCLUSIONS: Reduced spending in TM from rising MA enrollment is a form of Medicare savings that offsets, to a small degree, the substantial estimated overpayments made to MA plans.