The Comparative Advantage of Medicare Advantage

We ascertain the degree of service-level selection in Medicare Advantage (MA) using individual-level data on the 100 most frequent hierarchical coexisting conditions (HCCs) or combination of HCCs from two national insurers in 2012–13. We find differences in the distribution of beneficiaries across HCCs between traditional Medicare (TM) and MA, principally in the smaller share of MA enrollees with no coded HCC, consistent with greater coding intensity in MA. Among those with an HCC code, absolute differences between MA and TM shares of beneficiaries are small, consistent with little service-level selection. Variation in margins of hierarchical coexisting conditions (HCCs) does not predict differences between an HCC's share of Medicare Advantage (MA) and traditional Medicare (TM) enrollees, although one cannot a priori sign a relationship between margin and service-level selection. Margins are positively associated with the importance of post-acute care in the HCC. Margins among common chronic disease classes amenable to medical management and typically managed by primary care physicians are larger than among diseases typically managed by specialists. These margin differences by disease are robust against a test for coding effects and suggest that the average technical efficiency of MA relative to TM may vary by diagnosis. If so, service-level selection on the basis of relative technical efficiency could be welfare enhancing.