Medicare Advantage: CMS’ First Step into Value Based Care is Now Coming Full Circle

Medicare Advantage (MA) offers Medicare benefits through private health plans, providing an alternative to the traditional, federally-administered program. Also known as Medicare Part C, this private option traces its roots to the 1970s and received its current name and form in the Medicare Modernization Act of 2003. Since then, the number of enrollees has grown steadily at a faster pace than original Medicare. For 2016, 18.3 million people, almost one third of all Medicare beneficiaries, are enrolled in Medicare Advantage plans.[1] Over half of MA beneficiaries are enrolled in HMOs, with almost one-quarter in local PPOs and the rest in regional PPOs or PFFS programs.[2]

The percent of Medicare beneficiaries enrolled in original Medicare in each state is illustrated in Figure 1.[3] Several factors influence seniors’ decisions to stay with original Medicare or enroll in Medicare Advantage, which vary across the nation.

Figure 1. Percent of Medicare Recipients Enrolled in Original MedicareMedicare Advantage

The goal of Medicare Advantage is to lower prices for Medicare services by promoting competition in the market. Although payments to MA plans have actually been higher than traditional Medicare fee-for-service payments, one recent study estimates that the quality and efficiency improvements enabled under MA are lowering fee-for-service costs in areas with high MA market penetration.[1]

Medicare Advantage plans are fully capitated and have served as a platform for launching the movement toward value-based care. We are now seeing an increasing number of models and payment types being pushed by CMS, such as CPC Plus and MACRA payment reforms. While many of these models are separate from MA, MA operates with many aspects – such as quality metrics and bonuses, risk adjustment, PCMH initiatives, and other quality vs. volume-based initiatives -that are important drivers of value-based care and parallel well with the CMS and CMMI initiatives.  As the transition to value-based care progresses, we will continue to move away from a linear progression of value-based payments to a system comprised of layered approaches to payment reform.  The continued growth of MA membership provides CMS with opportunities to evaluate how MA plans will add to and incorporate into value-based care initiatives while enhancing the triple aim of improving the individual experience of care, improving the health of populations, and reducing the per capita costs of care for populations.


[1] Medicare Advantage/Part D Contract and Enrollment Data. Centers for Medicare & Medicaid Services. 2016. Available at:

[2] Gretchen Jacobson, Giselle Casillas, Anthony Damico, Tricia Neuman, and Marsha Gold. Medicare Advantage 2016 Spotlight: Enrollment Update.

[3] Medicare Advantage/Part D Contract and Enrollment Data. Centers for Medicare & Medicaid Services. 2016. Available at:

[4] Andrew Mueller and Brian Larsen. Might Medicare Advantage impact traditional Medicare costs?