Plan Quality, the ACA, And Medicare Advantage Plan Offerings

The Affordable Care Act (ACA) made a number of changes to the way Medicare Advantage (MA) plans are paid. There were two important modifications to MA payments.  First, rates were generally lowered to be a percentage of county fee-for-service (FFS) costs, with the percentage depending on the level of county FFS costs, rather than administratively set rates.  Second, the new rules introduced payment bonuses for plans whose quality ratings exceed a certain threshold.  Rulemaking by the Centers for Medicare and Medicaid Services (CMS) subsequent to the passage of the ACA enhanced these quality bonuses.  Our paper considers the impact of these changes on insurer decisions about plan offerings. In this paper, we ask two questions. First, do insurers respond to the payment rate changes (which are plausibly exogenous to underlying county trends in utilization) by either expanding or contracting their MA plan offerings?  Second, has the introduction of payment bonuses for higher plan quality encouraged insurers to add plans that will receive higher scores, and/or drop plans with lower scores)? We use publicly available data from CMS and other sources to evaluate these claims.  We evaluate insurer decisions about their plan offerings county by county, which allows us to disentangle the impact of the payment rate changes and the introduction of the quality bonuses.  Our findings have implications for the future of the quality bonus program, and the role of MA in the Medicare program more generally.