How Do Medicare Advantage Beneficiary Payments Vary With Tenure?

Compared with lower-cost plans, Medicare Advantage enrollees pay more for their plans the longer they remain enrolled.
Published Online: June 29, 2017
Paul D. Jacobs, PhD, and Eamon Molloy, PhD

Objectives: To compare how premiums and expected out-of-pocket medical costs (OOPC) vary with the length of time Medicare Advantage (MA) beneficiaries have been enrolled in their plans.

Study Design: Descriptive and fixed effects regression analyses.

Methods: Using linked administrative enrollment and plan data, we compared the costs of the MA plans that beneficiaries chose with the costs of other plans available to them. We show predicted values adjusted for age, gender, race/ethnicity, disability, individual health risk, presence of mental health diagnoses, health plan quality, relative size of the plan’s provider network, and the number of years continuously enrolled in the same plan. To further address the possibility of bias, we included county-level fixed effects and compared results to a beneficiary-level fixed effects model.

Results: We found average spending on premiums and OOPC in enrolled plans exceeded such costs in the lowest-cost plan by $697 in 2013. Beneficiaries who remained in their plans for 6 or more years were most at risk of spending these higher amounts, paying $786 more than they would have spent in the lowest-cost plan compared with $552 for beneficiaries in their first year of enrollment. For each year a beneficiary remained in their same plan, their additional spending in excess of the minimum cost choice increased by roughly $50.

Conclusions: MA beneficiaries could reduce their exposure to healthcare spending by switching to plans with lower premiums, although there may well be rational reasons for paying costs in excess of those of the lowest-cost plan.
Takeaway Points

Our results suggest that beneficiaries may not be actively and regularly comparing plans, and thus are subject to a certain amount of inertia in their plan selections. 
  • On average, beneficiaries who have been enrolled in their plans for longer periods of time paid more for their plan compared with the lowest-cost option available to them. 
  • Medicare Advantage beneficiaries could reduce their exposure to healthcare spending by switching to plans with lower premiums. 
  • Changes to the Medicare choice environment that increase the salience of premiums or encourage beneficiaries to compare plans could reduce passive reenrollment and stimulate a more robust competitive environment for insurers.
The option to choose a private health insurance plan has existed for Medicare beneficiaries for several decades. More than 17 million beneficiaries (31%) were enrolled in Medicare Advantage (MA) plans in 2016—up from 6.8 million a decade earlier—and beneficiaries had an average of 19 plan choices in that year.1,2 When choosing a plan, beneficiaries face a variety of tradeoffs, including premiums versus expected out-of-pocket medical costs (OOPC), which have important consequences given the lower incomes and higher average medical spending of Medicare beneficiaries compared with the broader US population. Understanding how beneficiaries choose among their plan offerings and the consequences of those choices is important for both beneficiary well-being and the competitiveness of the MA market.

We sought to address several questions related to plan choice in the MA market. Compared with other plans available to beneficiaries, how much are they currently spending on premiums and cost sharing? How do plan costs compare for beneficiaries who have been enrolled in the same plan for different periods of time? Compared with lower-cost options available to beneficiaries, what is the dollar value of the foregone savings—if any—from remaining in the same plan over time?

When choosing an MA plan, there are a variety of plan features for beneficiaries to consider: 1) the premium—if any—to enroll in the plan, including premiums for Part D (prescription drug) coverage and any reductions to the standard Part B (physician and outpatient) premium; 2) coverage of services supplementing the traditional Medicare benefit (eg, dental or vision coverage); 3) which medical providers are in-network; 4) plan quality; 5) utilization management practices; and 6) cost-sharing features and anticipated spending on OOPC. Most beneficiaries have a fairly wide choice of MA plans, including both health maintenance organization (HMO) and preferred provider organization (PPO) offerings.2

Although research shows consumers have difficulty selecting health insurance plans,3 the MA plan choice environment may be particularly confusing for consumers.4 First, Medicare beneficiaries, who are more likely to have cognitive limitations, can have difficulty assessing the various tradeoffs involved in deciding on a health plan.5,6 Second, because premiums are often used as an indication of quality and, in most counties, beneficiaries have access to multiple MA plans without an enrollee premium (aside from the Part B premium), they have to consider other attributes (eg, provider networks, cost sharing, covered benefits) that are more difficult to understand and compare.7 Third, many beneficiaries pay premiums through withholdings from their Social Security benefits, which may discourage beneficiaries from actively considering their choices even when premiums increase. Finally, as in other markets, beneficiaries who do not actively switch plans between years are automatically reenrolled in the same plan, potentially creating a bias toward their previously chosen option.8

Although several previous studies have investigated decision making in the MA market, few have looked specifically at what beneficiaries pay for coverage and how that compares with other options. For example, one recent study found that MA enrollees were more likely to choose plans that reduced cost sharing than those that kept premiums low, but it did not quantify differences in plan costs or how those values changed when beneficiaries were enrolled in their same plan for longer periods of time.9 Studies have examined the appropriateness of beneficiary choices of standalone Medicare prescription drug plans. Among other things, this research has tried to assess whether beneficiaries are subject to inertia in their plan selections with some disagreement about the extent of the problem and how it has evolved.10,11 Comparatively little attention has been paid to these concepts in the market for MA plans, and few studies have investigated the financial impact of the plans MA beneficiaries chose.


Our analysis relied on a unique link between several administrative databases that CMS collects. Our key results were derived from a 2% random sample of the Medicare Beneficiary Summary File enrollment databases for 2013, although we also used historical data on beneficiary plan selections from as early as 2006 to measure tenure in MA plans.12 Additional details about the data are provided in the eAppendix (eAppendices available at

We excluded beneficiaries who were not enrolled in both Part A and B of Medicare in January of each year, did not choose an MA plan with Part D coverage (MA-PD plans), were enrolled in a Special Needs Plan (SNP) or an employer plan, or were enrolled in Medicaid or the Part D Low-Income Subsidy program. From each beneficiary’s set of MA plan choices, we excluded SNPs, plans that were not an MA-PD, and employer-sponsored plans. Our final sample included 93,519 beneficiaries in 2013. All comparisons in the text are significant at the 0.1% level unless otherwise noted. Nominal dollar values are adjusted to 2013 US dollars using the Bureau of Labor Statistics’ Consumer Price Index US city average.

We compared each beneficiary’s choice of an MA-PD plan on 2 observable dimensions. First, we considered the total premium to enroll in the plan, including the Part B premium, any amounts the MA plan charges, and any premiums for Part D coverage. (Because Part B premiums can vary by income, we included the most common amount for a beneficiary with <$80,000 in income. Our measure incorporates any reductions to the Part B premium offered through MA plan rebates.)

Second, we analyzed expected OOPC, which is a CMS-derived actuarial estimate of average beneficiary spending for cost sharing for health services using a standardized sample of representative beneficiaries.13 CMS calculates OOPC values for each plan by mapping its cost-sharing features to the actual utilization patterns of the sample of beneficiaries. Five values of OOPC are calculated depending on a beneficiary’s self-reported health, and we imputed an average of these 5 values based on the probability that the beneficiary is in each of those health states. (The eAppendix provides more detail on the OOPC measure. eAppendix Table 1 shows that our descriptive results lie between the extremes of assuming all individuals are either in “excellent” or “good” self-reported health. Additionally, our main results in eAppendix Tables 2 and 3 are not sensitive to alternative imputation procedures, as shown in eAppendix Tables 4 and 5.)

CMS lists OOPC on the Medicare plan finder website, providing a prospective metric of spending in a plan that is potentially salient at the time of enrollment.14 Given that MA plans often use federal payments to cover services outside the fee-for-service (FFS) benefits package, OOPC is useful for identifying both variation in the breadth of coverage and differences in cost sharing between plans.

Our descriptive findings in the Table show enrollee premiums and OOPC for the plans beneficiaries chose and compare them to other plans they could have chosen. We compared the values for each beneficiary’s chosen plan with the values for: 1) the plan with the lowest enrollee premium, 2) the plan with the lowest OOPC, and 3) the minimum expected spending plan (MESP), or the plan with the lowest combined premiums plus OOPC. We also compared values for their chosen plan with the values for alternative choices within the same type of coverage, including HMO, PPO, and private FFS plans. Finally, we compared spending for a beneficiary’s plan to spending in alternative plans of the same type (HMO, PPO, private FFS, other) offered by the beneficiary’s current insurer. Although this comparison highlights how switching can reduce spending potentially without changing one’s provider network, it implicitly assumes beneficiaries would not switch insurers or plan types to save, and thus, could be considered an underestimate of foregone savings.

We assessed whether beneficiaries who remain in the same plan for longer periods of time pay larger premiums or receive less in expected benefits compared with those who switch plans. First, we compared the payments for beneficiaries who either newly enrolled in an MA plan in 2013 (“new enrollees”) or who switched plans between 2012 and 2013 (“switchers”) against those who remained in the same plan (“stayers”). Second, we examined payments by length of continuous enrollment in the same plan. For all regression results, we reported predicted differences in expected spending between the chosen plan and the MESP.

Using ordinary least squares models, we regressed differences in the cost of the chosen plan compared with the MESP on an identifier for switchers (Figure 1) or the number of years continuously enrolled in a plan (Figure 2). We controlled for a wide variety of individual characteristics that may be related to the decision to switch plans, including age, gender, race/ethnicity, individual-level health risk (using the CMS-derived Hierarchical Condition Category [HCC] risk score), and presence of mental health diagnoses. We also included indicator variables for the chosen MA plan’s star rating and provider network size compared with both the MESP and the median plan in the beneficiary’s county. The models included county-level fixed effects to control for unobserved aspects of the local MA market, such as geographic cost variation or the types of plans offered.

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