Journal of Economic Perspectives
ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)
Substitutes for Success? Public versus Private Competition in Medicare Advantage
Journal of Economic Perspectives
(pp. 143–70)
(Complimentary)
Abstract
We assess the evolving role of competition in Medicare Advantage and its implications for beneficiary welfare. We describe how competition from the public option, traditional Medicare, and other private insurers within Medicare Advantage act as substitutes in incentivizing plans to deliver value. We show that while historically the choice between traditional Medicare and Medicare Advantage provided a vital competitive dynamic, traditional Medicare's strength as a competitor has declined significantly, driven by generous payments favoring private plans. Consequently, the burden of ensuring value for enrollees has shifted to competition within the Medicare Advantage market. While county-level competition among private insurers has increased, this growth is primarily driven by the expansion of large national carriers rather than new entrants. Insurers still wield substantial market power due to significant barriers to entry, raising concerns about the ability of the program to incentivize private insurers to use public dollars to maximize value for beneficiaries.Citation
Layton, Tim, Luca Maini, and J. Michael McWilliams. 2026. "Substitutes for Success? Public versus Private Competition in Medicare Advantage." Journal of Economic Perspectives 40 (2): 143–70. DOI: 10.1257/jep.20251469Additional Materials
JEL Classification
- G22 Insurance; Insurance Companies; Actuarial Studies
- I11 Analysis of Health Care Markets
- I12 Health Behavior
- I13 Health Insurance, Public and Private
- I18 Health: Government Policy; Regulation; Public Health
- L13 Oligopoly and Other Imperfect Markets