Is Competition Within Medicare Advantage Enough to Deliver Better Care and Lower Costs?

Layton et al. (2026) examine whether competition among private Medicare Advantage plans can successfully replace competition from traditional Medicare in delivering higher-value coverage. They analyze national Medicare enrollment, switching, mortality, payment, and market concentration data from 2007–2022, supplemented by prior empirical research. They find that Medicare Advantage enrollment increased from about 20% to more than 50% of beneficiaries, while four national insurers now control over 70% of enrollment. County-level market concentration declined, yet most markets remain highly concentrated. The authors also report that a 1,000-point decline in the Herfindahl–Hirschman Index is associated with approximately a $5 increase in monthly plan rebates, indicating only modest consumer gains despite greater competition.

Why This Article Was Selected for The Policy Scientist

The long-run organization of publicly financed health insurance remains one of the most consequential policy questions facing advanced economies because it influences government spending, market competition, and access to care. That makes this article particularly timely as Medicare Advantage now enrolls a majority of Medicare beneficiaries and continues to expand. Layton, Maini, and McWilliams have each made substantial contributions to health economics and Medicare policy, making them well positioned to synthesize this literature. Published in the Journal of Economic Perspectives, one of economics' most influential review journals, the article builds on foundational work regarding competition and health insurance markets while integrating recent evidence into a coherent framework. The national Medicare administrative data provide excellent coverage and support broad generalizability to other countries that combine public financing with private plan competition. Because this is a review article rather than an original causal study, it relies primarily on descriptive analyses and prior empirical evidence. Future research would be strengthened by additional causal inference designs or randomized policy experiments that more directly identify the effects of competition on beneficiary outcomes and insurer behavior.

Full Citation and Link to Article

Layton, T., Maini, L., & McWilliams, J. M. (2026). Substitutes for success? Public versus private competition in Medicare Advantage. Journal of Economic Perspectives, 40(2), 143–170. https://www.aeaweb.org/articles?id=10.1257%2Fjep.20251469

Central Research Question

The article examines whether competition can make Medicare Advantage deliver meaningful value to beneficiaries and taxpayers, and whether competition among private insurers can substitute for the declining competitive pressure once supplied by traditional Medicare. The central issue is not merely whether Medicare Advantage plans are popular. Instead, the authors ask why enrollment in the private program has grown so rapidly, whether that growth reflects genuine efficiency or favorable government financing, and whether insurers face enough competitive pressure to pass public subsidies through to beneficiaries in the form of lower premiums, reduced cost-sharing, broader benefits, and higher-quality coverage.

The analysis distinguishes between two forms of competition. The first is competition between traditional Medicare and Medicare Advantage. A strong public option can discipline private insurers by giving beneficiaries a credible alternative. The second is competition among Medicare Advantage insurers. As traditional Medicare becomes less attractive relative to private plans, competition within Medicare Advantage becomes increasingly important. The article therefore asks whether rising private-plan competition has adequately replaced the weakening influence of traditional Medicare.

Previous Literature

The article builds on several major strands of health economics research. One concerns adverse selection and risk adjustment. Rothschild and Stiglitz (1976) established a foundational framework for understanding how differences in consumer risk can distort insurance markets. McGuire and Glazer (2000) examined how risk adjustment affects insurers’ incentives, while Brown et al. (2014) showed that risk selection responds to Medicare Advantage payment rules. Geruso and Layton (2020) documented how diagnosis-based risk adjustment encourages more intensive coding, raising payments to private plans.

A second literature examines whether competition benefits consumers in health insurance markets. Cabral, Geruso, and Mahoney (2018) found that Medicare Advantage insurers retained a substantial portion of increased government subsidies rather than fully passing them through to beneficiaries. Curto et al. (2021) developed a structural model of Medicare Advantage competition and concluded that insurers captured roughly two-thirds of the surplus generated by the program. Pelech (2018) used insurer exits to show that reduced competition caused remaining plans to become less generous, particularly in markets that were not already highly competitive.

A third literature studies plan choice, inertia, and consumer responsiveness. Ericson (2014), Polyakova (2016), and Heiss et al. (2021) documented substantial inertia in Medicare Part D enrollment decisions. Abaluck et al. (2021) found that beneficiary choices across private health plans do not necessarily track plans’ effects on mortality. These studies suggest that competition may not work effectively when consumers have difficulty observing quality, comparing complex plan attributes, or changing enrollment.

The article also draws on research concerning entry, market concentration, and supplemental benefits. Chao (2021) linked weaker competition to less generous dental, vision, hearing, and transportation benefits. Ianni, McWilliams, and Curto (2025) found that insurers were more likely to introduce new supplemental benefits in less concentrated markets. Zahn (2025) showed that market structure and selection influence both plan entry and plan design.

Data

The authors use national administrative data covering Medicare beneficiaries from 2007 through 2022. Their principal source is the Master Beneficiary Summary File maintained by the Centers for Medicare & Medicaid Services. These records allow them to measure enrollment in traditional Medicare and Medicare Advantage, transitions between the two programs, beneficiary mortality, insurer market shares, and the geographic availability of private plans.

The data cover essentially the entire Medicare population enrolled in Parts A and B under the study’s eligibility rules. This national scope is a major strength because it permits the authors to study both aggregate trends and local market variation. Medicare Advantage competition is measured primarily at the county level because insurers choose where to operate and generally set plan benefits and premiums locally.

The article also incorporates publicly available information on Medicare Advantage benchmarks, insurer bids, rebates, quality bonuses, and estimated overpayments. It draws on Medicare Payment Advisory Commission reports to assess how plan payments compare with the estimated cost of covering the same beneficiaries in traditional Medicare. Additional evidence comes from employer health-benefit surveys and published estimates of retiree supplemental coverage.

Methods

The article is primarily a descriptive and synthetic analysis rather than a single causal evaluation. The authors organize existing theory and empirical evidence around a conceptual model in which Medicare Advantage insurers choose plan quality by balancing higher enrollment against lower profits per enrollee. Greater competition should increase the sensitivity of enrollment to plan quality, encouraging insurers to offer more generous or attractive plans.

The empirical work tracks changes over time in Medicare Advantage enrollment, switching rates, mortality, insurer entry, national market shares, county-level concentration, and rebates. Market concentration is measured using the Herfindahl–Hirschman Index, calculated as the sum of squared insurer market shares. The article compares these values with federal thresholds for moderate and high concentration.

The authors also examine correlations between changes in market concentration and changes in plan rebates. They supplement their own descriptive evidence with causal and structural studies from the previous literature, including analyses based on insurer exits, subsidy changes, payment reforms, and estimated models of insurer bidding.

The methods are appropriate for describing market evolution and integrating a fragmented literature. However, the authors generally do not claim that their own trend comparisons establish causation. They repeatedly acknowledge that several explanations for Medicare Advantage growth remain difficult to distinguish empirically.

Findings/Size Effects

Medicare Advantage enrollment increased from approximately 20 percent of Medicare beneficiaries in 2007 to about 50 percent by 2022 and has since become the dominant form of Medicare coverage. Traditional Medicare consequently declined as a competitive alternative across nearly every major beneficiary group. The decline was especially pronounced in lower-income areas and among some racial and ethnic groups.

Government financing appears to explain an important portion of Medicare Advantage’s growing appeal. Plans receive benchmarks and risk-adjusted payments that frequently exceed estimated traditional Medicare spending for comparable beneficiaries. Estimated coding-related payment increases range from approximately 6 to 20 percent. Average monthly rebates remained near $90 per enrollee from 2010 through 2015 but then increased rapidly, reaching approximately $196 in 2023. These rebates finance lower cost-sharing, reduced premiums, and supplemental benefits such as dental, vision, and hearing coverage.

The evidence nevertheless suggests that higher payments do not fully explain the program’s growth. Medicare Advantage enrollment continued to increase during parts of the 2010–2015 period, even as benchmark payments declined. The erosion of employer-sponsored retiree coverage also contributed. The share of firms offering retiree health benefits fell from roughly 40 percent in the 1990s to 21 percent by 2023, reducing access to subsidized supplemental coverage that had made traditional Medicare more attractive.

Competition within Medicare Advantage increased at the local level. In 2007, about half of counties had no more than one of the four largest national insurers. By 2022, at least three of those insurers operated in more than 80 percent of counties, and all four were present in more than half. County-level concentration declined, particularly in previously concentrated markets.

However, most beneficiaries still lived in counties classified as highly concentrated under federal antitrust standards. Four major insurer groups—UnitedHealthcare, Humana, CVS/Aetna, and Blue Cross-affiliated plans—accounted for more than 70 percent of national Medicare Advantage enrollment. Insurers entering after 2007 offered plans in more than half of counties but captured only about 4.4 percent of enrollment by 2022.

The authors find that a 1,000-point decline in the Herfindahl–Hirschman Index was associated with an increase of approximately $5 in monthly rebates. This relationship suggests that greater competition improves plan generosity, although the magnitude is modest relative to average rebate levels. Prior causal studies reinforce this interpretation: insurers have commonly retained approximately one-half of additional subsidies, while structural estimates indicate that they may capture roughly two-thirds of total program surplus.

Conclusion

The article concludes that Medicare Advantage’s performance depends critically on competition, but neither existing source of competition is fully adequate. Traditional Medicare has weakened substantially as an alternative because it exposes beneficiaries to considerable cost-sharing, excludes several supplemental benefits, and has not kept pace with the growing generosity of private plans. Much of that private-plan generosity is financed through public payments rather than clearly demonstrated efficiency gains.

Competition among Medicare Advantage insurers has strengthened and appears to improve benefits, but the increase has primarily resulted from the geographic expansion of a small number of dominant national firms. Entry by genuinely new insurers remains limited, and existing carriers retain substantial market power.

The article’s principal contribution is to show that public-private competition and competition among private insurers are partial substitutes. A stronger traditional Medicare program could discipline private plans where insurer entry is limited. More effective private competition could partly compensate where the public option remains weak. The evidence indicates, however, that current market arrangements have not eliminated insurer market power or ensured full pass-through of government payments to beneficiaries.