Why Does Medicare Advantage Work Better Than Marketplaces?

A woman and her daughter speak after filling out forms in a doctor's office waiting room.

Analysis examines why Medicare Advantage plans continued to thrive in 2017 as Affordable Care Act marketplace plans struggled and makes recommendations for improvements to the marketplace based off Medicare Advantage’s successes.

 

The issue

Medicare Advantage (MA) markets are significantly more robust, with higher private insurer participation and lower average premium growth than the Affordable Care Act (ACA) marketplaces. The programs differ in insurer participation, the risk-adjustment system, and provider payments.

Key Findings

Based on MA’s success relative to the ACA marketplaces in terms of marketplace strength and long-term stability, there are five policies that could be useful for the ACA marketplaces:

  • Raise enrollment in marketplace plans by increasing premium and cost-sharing subsidies and eliminating short-term plans;

  • Cap provider payment rates at Medicare rates or a fixed percentage above them;

  • Standardize cost-sharing within metal tiers, or limit the number of plan designs available;

  • Lift the budget neutrality requirement for risk adjustment in the marketplaces; and

  • Use a higher benchmark than the second-lowest-cost silver plan for calculating premium tax credits.

 

Conclusion

MA’s success lays out a possible model for the ACA marketplaces. By adopting policies geared towards increasing enrollment in marketplace plans as well as insurer participation, the ACA marketplaces could become stronger and more stable.

About the Urban Institute

The nonprofit Urban Institute is dedicated to elevating the debate on social and economic policy. For nearly five decades, Urban scholars have conducted research and offered evidence-based solutions that improve lives and strengthen communities across a rapidly urbanizing world. Their objective research helps expand opportunities for all, reduce hardship among the most vulnerable, and strengthen the effectiveness of the public sector. Visit the Urban Institute’s Health Policy Center for more information specific to its staff and its recent research.