Rural Medicare Advantage Market Dynamics and Quality: Historical Context and Current Implications

Purpose. In this policy brief, we assess variation in Medicare’s star quality ratings of Medicare Advantage (MA) plans that are available to rural beneficiaries. Evidence from the recent Centers for Medicare & Medicaid Services (CMS) quality demonstration suggests that market dynamics, i.e., firms entering and exiting the MA marketplace, play a role in quality improvement. Therefore, we also discuss how market dynamics may impact the smaller and less wealthy populations that are characteristic of rural places. Key Data Findings. (1) Highly rated MA plans serving rural Medicare beneficiaries are more likely to be health maintenance organizations (HMOs) and local preferred provider organizations (PPOs), as opposed to regional PPOs. HMOs and local PPOs may be better able to improve their quality scores strategically in response to the bonus payment incentive due to existing internal monitoring mechanisms. (2) On average, the rural enrollment rate is lower in plans with higher quality scores (59 percent) than the corresponding urban rate (71 percent). This differential is likely due, in part, to lack of availability of highly rated plans in rural areas: 17.8 percent of rural counties lacked access to a plan with four or more (out of five) stars, while just 3.7 percent of urban counties lacked such access. (3) MA plans with high quality scores have been operating longer, on average, and have a lower percentage of rural counties within their contract service areas than plans with lower quality scores.