In this nationally representative study, the availability of more plan options was associated with increased enrollment in Medicare Advantage when elderly Medicare beneficiaries chose from a limited number of plans (less than fifteen plans) but with unchanged or decreased enrollment in Medicare Advantage when beneficiaries chose from larger numbers of plans (fifteen to thirty and more than thirty plans, respectively). Moreover, elderly adults with low cognitive functioning responded less to the generosity of Medicare Advantage benefits than elderly adults with high cognitive functioning, suggesting many Medicare beneficiaries are unable to access or process information when making enrollment decisions in the current choice environment.
These findings are consistent with prior research on beneficiary choice in Medicare Part D(15
) and well-described tendencies of consumers to make poor choices or refrain from making any choice at all when confronted with numerous options or complexities that overwhelm their cognitive abilities.(3
) To make a good choice, elderly Medicare beneficiaries must often sift through dozens of Medicare Advantage options and compare these with traditional Medicare and Medigap alternatives. In contrast, most working-age adults rarely choose from more than a handful of plans pre-selected by their employers. Employers limit options to keep choices simple and to negotiate better benefits and rates for their workers.(36
) Thus, our study suggests the Medicare Advantage program has facilitated an overabundance of choice for many elderly beneficiaries, posing a level of complexity far beyond that experienced by the non-elderly.
In response to efforts by the Centers for Medicare and Medicaid Services to eliminate low-enrollment and duplicative plans (plans offering no meaningful differences from others) and a new requirement that private fee-for-service plans develop provider networks, the number of Medicare Advantage plans available to beneficiaries decreased somewhat from 2009 to 2010.(1
) Our findings indicate that further reductions in the number of plans would not lower enrollment in Medicare Advantage and might actually increase Medicare Advantage enrollment in the 25 percent of counties that had the most plans and accounted for over 70 percent of Medicare Advantage enrollees in 2010. Thus, choices could be simplified for beneficiaries without necessarily compromising the scale of the Medicare Advantage program.
Our findings raise particular concerns for beneficiaries with reduced cognitive functioning, a group that will grow substantially as the Medicare population ages.(12
) Medicare Advantage plans currently compete for enrollees through the benefits they offer and the premiums they charge, but elderly beneficiaries with low cognitive functioning were not responsive to changes in these features, implying two problems. First, these beneficiaries may make an enrollment decision ill-suited to their needs. Second, plans can profit from this unresponsiveness by offering less generous coverage or reducing benefits but nonetheless attracting or retaining enrollees with limited cognitive abilities. Prior studies have demonstrated that elderly adults do not value larger choice sets as highly as younger adults do, that Medicare beneficiaries’ knowledge of their alternative insurance options is poor, and that educational interventions can result in more knowledge and better-informed choices.(37
) Our findings build on these studies and suggest that national efforts to limit choice in Medicare Advantage and guide beneficiaries to the most valuable options could improve the welfare of seniors and strengthen competition among plans by rewarding value.
In particular, health insurance exchanges can improve information provided to consumers, structure choice sets, standardize benefits, and foster competition on price and quality by forcing plans to compete first for the approval of a discerning agent rather than for overwhelmed consumers.(43
) Under the Patient Protection and Affordable Care Act of 2010, exchanges will be created throughout the United States for individual and small group purchasers of commercial insurance. To the extent these non-elderly consumers are affected by early cognitive impairment or make suboptimal decisions when presented with numerous options, exchanges that limit the menu of plans or steer individuals toward high-value options may be most effective. Moreover, our findings would support policies to expand the role of these exchanges to serve elderly Medicare beneficiaries and Medicare Advantage plans or authorize the Medicare program to take on similar responsibilities.
Strengths of our study included a rich set of linked survey and administrative data that supported unique comparisons by cognition and a rigorous analytical approach to identify within-county changes in Medicare Advantage enrollment explained by expansions in choice and benefits that varied across counties after the Medicare Modernization Act.
Our study also had several limitations. Because enrollment files did not identify the specific Medicare Advantage plans in which beneficiaries enrolled, we could not compare the benefits of plans chosen by beneficiaries with traditional Medicare or other available plans. Consequently, we relied on a county-level measure of the average generosity of benefits available to participants through the Medicare Advantage program. Nevertheless, this measure of benefit generosity varied substantially across counties and time, as expected from increases in county-specific payment rates in Medicare Advantage during the study period. This variation allowed us to detect a significant difference between beneficiaries with high and low cognitive functioning in their responsiveness to changes in the average benefits available in their counties. Had we been able to observe and compare the specific plans individuals chose, we expect this modifying effect of cognition on enrollment decisions would have been even stronger.
By assuming beneficiaries were aware of all plans available in their counties, we likely overestimated the size of choice sets encountered by beneficiaries. Therefore, diminishing effects of increased choice on Medicare Advantage enrollment may occur at lower numbers of plans actually considered by beneficiaries than our results indicate.
We used a validated measure of cognitive functioning but one that cannot be used directly to identify adults with impaired decision making based on a cutoff score. Nevertheless, beneficiaries’ responsiveness to expanded benefits in Medicare Advantage differed significantly by the summary cognition score, when analyzed as a categorical or continuous predictor, suggesting this measure was a reliable correlate of decision-making skills. A more discerning measure of cognitive functions required for informed decision making would presumably reveal even greater differences in responsiveness to available benefits. Some participants, particularly those with severe cognitive impairments, may have been aided by family members or friends when deciding between Medicare Advantage and traditional Medicare. The involvement of proxy decision makers likely biased our results toward the null and would not alter the policy implications of our findings (see Technical Appendix D
for empirical evidence of this bias).
In addition to the factors we examined, participants’ attachments to their providers, which were not assessed in surveys, may have influenced decisions to switch from traditional Medicare to Medicare Advantage plans with restricted provider networks. This omission from our analysis likely did not bias our results, however, because provider attachments in the study cohort were unlikely to change systematically over time and counties with the number of plans and generosity of benefits available in Medicare Advantage. Furthermore, much of the proliferation in choice in Medicare Advantage since 2003 has been due to the growth of private fee-for-service plans,(45
) which did not restrict beneficiaries’ choice of providers during the study period. Payment rates to these plans in particular have exceeded local levels of fee-for-service spending in traditional Medicare, enabling them to attract enrollees by offering more generous benefits than traditional Medicare while preserving broad choice of providers. Thus, the growing availability of private fee-for-service plans suggests beneficiaries with low cognitive functioning were more likely to forego dominant options in favor of traditional Medicare.
Finally, we examined enrollment decisions from the beneficiary’s perspective and assessed Medicare Advantage options in terms of the expected financial burden for beneficiaries relative to traditional Medicare. We could not directly measure the value beneficiaries placed on features of Medicare Advantage plans other than benefit generosity or determine from a societal perspective whether it is better or worse for more beneficiaries to be enrolled in Medicare Advantage. Nevertheless, our findings suggest important problems in the way enrollment choices are currently presented to Medicare beneficiaries.
In conclusion, Medicare beneficiaries were less likely to enroll in Medicare Advantage when faced with numerous plan choices, and beneficiaries with low cognitive functioning were substantially less responsive to the generosity of available benefits when choosing between traditional Medicare and Medicare Advantage. Health care reforms that restructure and simplify choice in Medicare Advantage could improve beneficiaries’ enrollment decisions, lower out-of-pocket costs for beneficiaries with cognitive impairments, and help invigorate value-based competition among managed care plans in Medicare.