Hoisted by its own petard? Medicare Advantage Payment Changes and the Affordable Care Act

In 2023, over half of Medicare beneficiaries were enrolled in Medicare Advantage (MA), costing the federal government over $350M in payments to MA plans. Passing the 50% threshold has put a spotlight on potentially excessive payments to these MA plans. In 2012, the ACA introduced benchmark cuts intended to reign in payments to MA plans, while the Quality Bonus Program (QBP) was implemented to provide financial incentives to plans to attain higher quality ratings. There was significant geographic variation in both the benchmark cuts and QBP payments. In this paper, I use Medicare Advantage data and an event study design to investigate whether the benchmark cuts were counteracted by the QBP payments and to examine changes in MA enrollment linked to both payment levers. I find that QBP payment blunted the financial consequences of the benchmark cuts, but neither policy had a significant impact on enrollment and pales in comparison to secular Medicare Advantage growth, suggesting at current payment levels, future payment policy changes may be able to change per enrollee MA expenditures without meaningfully altering enrollment growth trajectory. However, the MA payment system is implicitly built upon a robust and representative FFS enrollment, so there are long-term payment consequences of unconstrained MA growth that these payment levers may not be able to affect meaningfully.