Reallocating Bonus Payments Through Competition to Improve Medicare Advantage Plan Quality: A Dynamic Game Approach (Job market paper)


This paper explores how competition among firms can be used to improve the quality of offered plans in a managed care setting like the Medicare Advantage. In a managed market, private firms provide government sponsored services at a regulated price and compete for subsidies. I analyze how the Medicare Advantage markets would evolve in terms of plan quality under a competitive bonus payment system where plans are rewarded based on their quality performances relative to their competitors in a local market. I model the firm’s choice of quality improvement initiatives using a dynamic discrete game and predict the counterfactual plan quality in each market as measured by CMS star ratings after introducing a competitive bonus payment system. The results show that 65% of the counties improve their average plan quality under the new bonus system as compared to their observed outcomes with 68% of the counties having an average rating of four or more stars.