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Managing care and competition
Date:12/4/2012

the study demonstrates the potential for MA to control resource use, theoretically leading to overall savings, although currently MA is more expensive than traditional Medicare. One reason for those higher expenses has been favorable selection. Cuts to Medicare Advantage payments in the Affordable Care Act are designed to bring costs down and realize those potential savings by reducing overpayment.

"Because the Medicare Advantage plans attracted healthier than average patients, yet were paid based on the costs of an average patient, the Congressional Budget Office concluded in the 90s that the government paid 8 percent more per patient in Medicare Advantage than they would have for the same patients in traditional Medicare," said Joseph Newhouse, John D. MacArthur Professor of Health Policy and Management at Harvard University and professor of health care policy at Harvard Medical School. "If you could get healthy people in your plan, you made money."

Congress enacted a series of reforms designed to counter favorable selection, including reforms that prevent patients from shifting from MA to traditional Medicare from month to month and a new risk adjustment system that adjusts payments based on the diagnoses of MA patients from the previous year. Plans now receive less per healthy patient than they do for patients who have had heart attacks, diabetes and other diagnoses in the previous years.

In two complementary studies using different methods, Newhouse and Michael McWilliams, assistantprofessor of health care policy and medicine at Harvard Medical School, each found that favorable selection has been greatly reduced since 2004, when reforms were phased in.

According to Newhouse and McWilliams, the reforms have succeeded in making it more difficult for health plans to compete by attracting favorable risks and they must now focus on managing medical risk. Since similar means of assessing risk and assigning higher payments to pla
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Contact: David Cameron
david_cameron@hms.harvard.edu
617-432-0441
Harvard Medical School
Source:Eurekalert

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