In this report, the findings suggest that if Medicare Advantage plans were to be paid an amount equal to the average of bids in a county weighted for enrollment, payments in most counties would be highly influenced by the bids of one dominant plan or a very few plans in the market, rather than set by a process involving true competition among many firms.

From the report:

Private health plans that enroll Medicare beneficiaries—known as Medicare Advantage (MA) plans—are being paid $11 billion more in 2009 than it would cost to cover these beneficiaries in regular fee-for-service Medicare. To generate Medicare savings for offsetting the costs of health reform, the Obama Administration has proposed eliminating these extra payments to private insurers and instituting a competitive bidding system that pays MA plans based on the bids they submit. This study examines the concentration of enrollment among MA plans and the degree to which firms offering MA plans actually face competition. The results show that in the large majority of U.S. counties, MA plan enrollment is highly concentrated in a small number of firms. Given the relative lack of competition in many markets as well as the potential impact on traditional Medicare, the authors call for careful consideration of a new system for setting MA plan payments.

Full report: Paying Medicare Advantage by Competitive Bidding: How Much Competition Is There? (PDF | 687 KB)

The Commonwealth Fund. (2009). Medicare advantage by competitive bidding: how much competition is there? Biles, B., Pozen J. & Guterman, S.