Performance Improvement 2006. Objective 3.3 - Strengthen and Improve Medicare

The purpose of this project was to develop a simulation model for assessing the potential effect of the Medicare Advantage (MA) stabilization fund in inducing MA plans to enter and remain in particular MA markets. The MA stabilization can be used to provide: (1) A bonus for insurers offering a national plan; (2) A plan entry bonus for plans entering MA regions without an MA plan in the prior year; (3) A retention bonus for plans in regions that will have fewer than two available plans due to plan exits. This project involved using historical Medicare + Choice (M+C) information to simulate the effects of the bonus on plan entry and exit. A statistical model was developed measuring the relationship between plan payments, entry, and exit. The effects of the bonus were then simulated based upon estimates of the marginal impacts of payment rates on plan participation, within a given defined market area. It was estimated that characteristics of plans and markets such as the plan's major medical and health maintenance organization (HMO) market share (combined with those of its affiliates) and the strength of its previous presence in the MA market have a significant impact on a plan’s decision to enter the Medicare market. Other factors, independent of payment rates, discourage plan entry - particularly a high medical loss ratio in the plan's regional major medical and Medicare HMO businesses, and the existing penetration of commercial HMOs in the region. Once these factors have all been accounted for, there was a relatively low estimated sensitivity of plan entry to increases in payments.