Effects of Changing Medicare Advantage Landscape on Rural Enrollees

Research center:
Lead researcher:
Project funded:
September 2012
Project completed:
February 2014
There have been considerable changes to the rural Medicare Advantage (MA) marketplace in recent years as rural MA enrollment has grown to over 1.5 million enrollees in 2011. The most notable changes are the shift from private fee-for-service plans (PFFS) to preferred provider (PPO) plans and the concentration of the market into three firms (Humana, Blue Cross Blue Shield affiliates, and UnitedHealthcare).

On this backdrop of a changing MA marketplace, this project explores the implications of recent changes in policy for federal payment to Medicare Advantage (MA) plans, implemented in the Patient Protection and Affordable Care Act (ACA). This legislation will lead to significant changes in MA benchmark payments over time. Beginning in 2012, the reformed payment structure will reduce payments to MA plans from a national average of 113 percent of FFS costs in 2009 to an average of 101 percent of FFS costs when fully implemented in 2017.

The payment changes will also implement significant changes. In addition to this overall payment change, there are three major elements to the new MA payment policy: (a) dividing payment cohorts into cohorts and adjusting payments differently in each quartile, (b) adjusting payments to MA plans based on plan performance, and (c) reduce the rebates (the difference between benchmarks and plan costs) to MA plans.

This project explores the impacts of recent changes in the MA market on rural Medicare beneficiaries, providers, and communities. In particular, the project will focus on two key issues:

  1. how choices of plans facing rural beneficiaries are influenced by MA payment policies (in particular the introduction of quality star ratings linked to bonus payments), increased benefits and coverage requirements for plans, and other market changes;
  2. the likely impact of these changes on rural enrollment in MA plans in 2012 and beyond.

Hypotheses, Design, and Analysis:
Historically, MA plans have faced difficulty continuing to operate in rural counties due to lower payment levels (relative to urban areas). For this reason, policymakers implemented a range of policies to encourage expansion of MA into rural areas.

The changes implemented in the ACA could have a significant impact on the incentive of plans to enter and remain in rural areas, and thus on the number of MA choices available to rural enrollees, as well as the benefits these plans offer. This leads to a number of hypotheses this project will investigate:

  • H1: Rural MA plans will be more significantly impacted by the new payment structure in the ACA, as measured by the size of the actual payment change;
  • H2: MA plans in rural areas are less likely to generate rebates that are in turn passed along to consumers, due to lower benchmarks rates in rural areas and more limited competition in the local MA market;
  • H3: The quality payment calculation will be disproportionately advantageous to urban counties due to a range of factors (e.g., a higher proportion of PPO plans in rural areas, diseconomies of scale, and lack of market competition)


  • 2012 Rural Medicare Advantage Quality Ratings and Bonus Payments
    Policy Brief
    RUPRI Center for Rural Health Policy Analysis
    Date: 01/2014
    This brief analyzes differences in rural Medicare Advantage (MA) quality ratings and payments and suggests reasons why quality ratings vary by geography. Overall, the quality rating of MA plans in rural areas is lower than in urban areas, a result of the availability of, and enrollment in, different types of MA plans.