The Roles of Cost and Quality Information in Medicare Advantage Plan Enrollment Decisions: an Observational Study

To facilitate informed decision-making in the Medicare Advantage marketplace, the Centers for Medicare & Medicaid Services publishes plan information on the Medicare Plan Finder website, including costs, benefits, and star ratings reflecting quality. Little is known about how beneficiaries weigh costs versus quality in enrollment decisions.

We aimed to assess associations between publicly reported Medicare Advantage plan attributes (i.e., costs, quality, and benefits) and brand market share and beneficiaries’ enrollment decisions.

We performed a nationwide, beneficiary-level cross-sectional analysis of 847,069 beneficiaries enrolling in Medicare Advantage for the first time in 2011.

Matching beneficiaries with their plan choice sets, we used conditional logistic regression to estimate associations between plan attributes and enrollment to assess the proportion of enrollment variation explained by plan attributes and willingness to pay for quality.

Relative to the total variation explained by the model, the variation in plan choice explained by premiums (25.7 %) and out-of-pocket costs (11.6 %) together explained nearly three times as much as quality ratings (13.6 %), but brand market share explained the most variation (35.3 %). Further, while beneficiaries were willing to pay more in total annual combined premiums and out-of-pocket costs for higher-rated plans (from $4,154.93 for 2.5-star plans to $5,698.66 for 5-star plans), increases in willingness to pay diminished at higher ratings, from $549.27 (95 %CI: $541.10, $557.44) for a rating increase from 2.5 to 3 stars to $68.22 (95 %CI: $61.44, $75.01) for an increase from 4.5 to 5 stars. Willingness to pay varied among subgroups: beneficiaries aged 64-65 years were more willing to pay for higher-rated plans, while black and rural beneficiaries were less willing to pay for higher-rated plans.

While beneficiaries prefer higher-quality and lower-cost Medicare Advantage plans, marginal utility for quality diminishes at higher star ratings, and their decisions are strongly associated with plans’ brand market share.