Spillover effects of Medicare advantage plans: Does the market penetration of plans affect hospital care quality

The percentage of Medicare beneficiaries enrolled in Medicare Advantage (MA) plans increased from 12 percent in 2003 to 28 percent in 2013 out of the about 50 million Medicare enrollees. Although Medicare beneficiaries are increasingly choosing MA plans, little is known about whether and how the market penetration of these plans affect the quality of hospital care provided to Medicare beneficiaries. This issue is extremely important to policy makers when they try to evaluate the importance and effectiveness of current Medicare policy, like Obama Care. This paper is designed to examine the spillover effect on the quality of hospital care under traditional Medicare responds to the local market penetration of MA plans, such as MA health maintenance organizations (HMOs), MA preferred provider organizations (PPOs), and MA private fee-for-service (PFFS) plans. Using nationally representative data from the 2006 to 2009 Medicare Current Beneficiary Survey and enrollment data from CMS, this study shows that higher Medicare Advantage plan penetrations are associated with lower readmission. Thus, I conclude that the expansion of Medicare Advantage plans has a positive spillover effect on quality of care received by individuals enrolled in traditional Medicare plans.