Objectives: Private managed care plans in the Medicare Advantage (MA) program have been gaining market share relative to traditional fee-for-service Medicare (TM), yet there are no obvious structural changes to Medicare that would explain this growth. Our goal is to explain the growth in MA market share during a period when it increased dramatically.
Study design: Data are drawn from a representative sample of the Medicare population from 2007 to 2018.
Methods: We decomposed MA growth into changes in the values of explanatory variables that influence MA enrollment (eg, income and payment rate) and changes in preferences for MA vs TM (estimated coefficients) using a nonlinear version of the Blinder-Oaxaca decomposition to distinguish the sources of MA growth. We find that the relatively smooth growth in MA market share masks 2 distinct growth periods.
Results: From 2007 to 2012, 73% of the increase was due to changes in the values of the explanatory variables, and only 27% was due to changes in coefficients. In contrast, from 2012 to 2018, changes in explanatory variables, particularly MA payment levels, would have led to a decline in MA market share if that effect had not been offset by changes in the coefficients.
Conclusions: Overall, we find that MA is becoming more appealing to more educated and nonminority beneficiaries than in the past, although minority and lower-income beneficiaries are still more likely to pick the program. Over time, if preferences continue to shift, the nature of the MA program will change as it moves more toward the middle of the Medicare distribution.