Historically, when government reimbursements to health plans decrease, enrollment tends to decrease in turn. For example, reductions in reimbursements to Medicare managed care plans brought about by the Balanced Budget Act of 1997 coincided with major loss of members. However, since 2010, in the wake the Affordable Care Act (ACA)1 that placed various limits on Medicare Advantage (MA) managed care plans, enrollments have been steadily increasing. Today, one in three Medicare beneficiaries is enrolled in an MA plan. What explains this paradox?

According to economist Austin Frakt, there are several reasons for the unexpected success of Medicare Advantage plans2.

Gentle Cuts

The ACA’s spending cuts were phased in more slowly than earlier cuts. This gave MA plan managers the opportunity to adjust rates to adjust to new market conditions. As a result, they managed to blunt the “sticker shock” phenomenon that usually accompanies steep year-over-year premium increases.

That’s a bonus

In a carrot-and-stick approach, the ACA provided quality bonus payments to offset the reduced reimbursements. Plans with high ratings, based on HEDIS and other metrics, were rewarded.  Innovative plan managers were able to create plans that scored four or five stars, receiving bonuses while simultaneously pleasing their members.

Experience matters

In 2018, beneficiaries of the Medicare program in general have experienced more positive interactions with managed care than have previous generations of elders. As a result, MA plan members feel more comfortable with their plans and in general have positive opinions about them.

Plan managers, for their part, have learned from the bitter experience of earlier years, when they received substantial push-back for their plans’ burdensome restrictions and requirements. Currently, many MA plans make fewer demands of members. The principal restriction today is on choice of providers.

It’s getting better all the time

Part of the improved member satisfaction can be explained by the fact that MA networks may be larger than in years past. In particular, the preferred provider organizations (PPOs) may offer broader choice in terms of providers and services than were offered by the HMOs of the past. Notably, customer satisfaction and quality of the plans are identical or superior to the same metrics for traditional Medicare.

That’s attractive

Another reason Medicare recipients prefer MA plans to traditional Medicare is that the latter lacks the flexibility and innovation of the former. Whereas traditional Medicare has been constrained to offer the same cost-sharing structure that it has been using for years, MA plan managers have made their plans more attractive to seniors by offering a variety of benefits and cost-sharing structures. For example, a plan may keep premiums low while making up the difference in cost-sharing. These innovations are likely to attract younger and healthier seniors who feel they are less likely to require expensive care in a given year.

Filling the gap

As older people with employer-funded health plans near retirement, many enroll in plans that include retiree supplements that wrap around traditional Medicare plans. In recent years, however, employers have been dropping these plans or cutting back on the benefits. As supplemental plans become more expensive or disappear altogether, MA plans, many of which are subsidized, have rushed in to fill the gaps.

MA plan managers have taken the opportunity of expanded market opportunities to create plans that provide incentives to treat patients well, and their high-quality marks attest to their success. For example, innovative MA plans offer benefits that favor post-acute care at home, an option more attractive to today’s seniors, who tend to be more robust than seniors of decades past.

A win-win-win

Building on the momentum MA plans have enjoyed since 2010, managers are seeing opportunities to leverage their flexibility to engineer plans that help reduce hospital readmissions by considering the patient holistically. These efforts are likely to pay dividends to the plans, as readmissions are substantial sources of preventable expenditures. The government certainly benefits, as the cost savings will help slow the historically rapid rise in annual cost increases. Finally, MA plans are wins for the members, who receive personalized care that maximizes quality of life. That’s a win-win-win situation.


  1. Affordable Care Act | Healthcare.gov
  2. Explaining the growth in Medicare Advantage | AcademyHealth