In 2018, enrollment in Medicare Advantage (MA) plans will reach a new high of 34 percent and is predicted to climb as high as 70 percent between 2030 and 2040. In addition, MA plans average monthly premiums have decreased over the last three years. While MA plans are thriving and continue to grow, health insurers in the health insurance marketplace established under the Patient Protection and Affordable Care Act (ACA) (P.L.111-148) have not had the same outcomes. Premiums continue to rise and health insurers have left and continue to leave the marketplace. This Strategic Perspective provides the background that led to the current MA program and discusses the factors that have led to the growth and success of MA plans.
The Creation, Decline, and Resurgence of Medicare Part C
Medicare has included health maintenance plans since 1966. Originally paid on a reasonable cost basis, the 1972 Social Security Amendments (P.L. 92 – 603) required new plans to operate on a risk-sharing contract, the Commonwealth Fund explained in The Evolution of Private Plans in Medicare. Today, CMS pays health plans a capitated (per enrollee) amount monthly to provide the required benefits in exchange for the plans’ assumption of liability for the health expenses of beneficiaries enrolled in the plan. In addition, Medicare makes a separate payment to plans that provide prescription drug benefits under Medicare Part D. Part C health insurers include health maintenance organizations, preferred provider organizations, private FFS plans, special needs plans, and medical savings account plans.
The Balanced Budget Act. The Balanced Budget Act of 1997 (BBA) (P.L. 105-33), established Medicare Part C, the managed care part of the Medicare program, to give beneficiaries the option of choosing a private health rather than the traditional fee-for-service (FFS) Medicare. When created, Part C was referred to as Medicare+Choice. Under Part C, private companies contract with CMS to offer beneficiaries Part A and Part B benefits that are equivalent to traditional Medicare benefits. In some cases, the benefits offered under a Medicare Part C plan are greater than those under traditional Medicare.
The Commonwealth Fund report explained that the BBA established new risk adjustment measures based on health status and an annual enrollment period with only one switch allowed outside the period. It also eliminated the previous payment formula and reduced payment rates to plans. Because the payments were reduced further than expected, Medicare + Choice plan participation and enrollment declined nearly 40 percent from 1999 to 2001 and the average premium across all plans increased 200 percent. In 2002, beneficiaries with access to a Medicare+Choice plan declined from 72 percent in 1999 to 61 percent, enrollment fell to 21 percent, and the number of plans dropped 50 percent, Austin Frakt, PhD, reported in Explaining the growth in Medicare Advantage. Industry representatives said that that the drop in plans and enrollment was because government subsidy payments to plans did not keep up with costs.
The Medicare Modernization Act. The Medicare Modernization Act of 2003 (MMA) (P.L.108-173) changed the name of the Part C to Medicare Advantage (MA), significantly increased payments to the plans, and created new private plan options.
By 2006, every Medicare beneficiary had access to at least one plan and, by 2009, beneficiaries had an average of 48 plans from which to choose. Between 2006 and 2011, most new enrollees had switched from traditional Medicare to MA, according to The Commonwealth Fund. MA plans were paid under a bidding system. Prior to the bidding system payments to plans were more than the average amount spent on traditional Medicare beneficiaries.
The Patient Protection and Affordable Care Act. A Kaiser Family Foundation (KFF) Fact Sheet explained that sec. 3201(a) of the ACA reduced benchmarks to cut payments to MA plans to bring them closer to traditional Medicare spending levels and reduce rates. Section 3201(f) of the ACA also established a system to compensate MA plans with high quality ratings. Plans with four or more stars and plans without ratings have been receiving bonus payments based on quality ratings. Despite the ACA payment cuts, MA plans continue to grow; according to a KFF report, MA enrollment has increased 71 percent since the ACA passed.
MA Plans Today and Predictions for the Future
According to CMS, new policies adopted in the 2018 Rate Announcement and Final Call Letter support increase benefit flexibility, efficiency, and innovative approaches that improve quality accessibility and affordability in the MA program allowing MA plans the ability to offer innovative plans that fit the needs of people with Medicare.
Access to MA plans. CMS reported that access to the MA program remains strong, with 99 percent of Medicare beneficiaries having access to at least one MA plan in their area. In recent years, the number of MA plans available to individuals to choose from across the country has increased from about 2,700 to more than 3,100 and the average number of MA plan choices per county will increase by two plans, which is approximately 29 plan choices per county. In 2018, 85 percent of Medicare beneficiaries have access to 10 or more MA plans and more MA enrollees are projected to have access to important supplemental benefits such as dental, vision, and hearing benefits.
Premiums. According to a CMS Fact Sheet issued on September 9, 2017, the average monthly premiums in MA plans decreased from $32.91 in 2015 to $30 in 2018. More than three-fourths (77 percent) of MA enrollees remaining in their current plan have the same or lower premium for 2018, according to KFF. In the meantime, health plan premium revenues tripled from $69 billion in 2007 to $187 billion in 2016, Thomas Beaton reported in HealthPayer Intelligence.
Growth in enrollment. CMS announced that enrollment in MA is projected to increase to 20.4 million in 2018, a 9-percent increase from 2017. More than one-third of all Medicare enrollees are projected to be in an MA plan in 2018. In a report, "Why Medicare Advantage Is Marching Toward 70% Penetration," Bill Frack, Managing Director and Partner, Andrew Garibaldi, Principal, and Andrew Kadar, Principal, in L.E.K. Consulting’s Healthcare Services practice, noted that MA plans "have grown at a slow but steady pass," over the past 20 years, "consistently penetrating the Medicare marketplace" with no signs of slowing. L.E.K. predicted that enrollment will approach 38 million, or 50-percent penetration, by the end of 2025 and that growth will continue until it reaches 70 percent of the Medicare population between 2030 and 2040.
Who and What Have Contributed to Medicare Advantage Growth?
MA plans continue to grow despite ACA payment cuts due to "a combination of factors, including the way payment cuts were imposed, the plan offerings, and the characteristics of beneficiaries and the way they make choices together explain the program’s current health, Anna D. Sinaiko, Ph.D., Harvard T.H. Chan School of Public Health and Richard Zeckhauser, Ph.D., Harvard Kennedy School contend in their 2015 article, "Medicare Advantage – What Explains Its Robust Health." The authors identified four specific factors for the growth:
- Unlike the payment cuts to plans in the late 1990s, the 2010 cuts imposed by the ACA were less severe and have been phased in over time. In addition, depending on each plan’s quality rating, plans may receive concurrent direct bonus payments. As a result, MA plans today receive payments 6 percent above beneficiaries’ expected FFS costs.
- MA beneficiaries today have had more and better experience with managed care than beneficiaries making choices in the 1990s. When MA plans terminate, the vast majority of MA beneficiaries actively choose to enroll in another MA plan.
- MA plans offered today are superior in variety and quality to those of the past. Many plans offer more expansive physician networks and beneficiaries have more access to MA plans. The measured quality of MA plans, including patient satisfaction, meets and at times exceeds, that of traditional Medicare.
- Cognitive biases affecting Medicare beneficiaries’ decision making are likely favoring MA plans. Examples include: (1) status quo bias (the tendency of individuals to stay with current choices when alternatives might be superior); and (2) valuing plan premium dollars more than total out-of-pocket dollars. To capitalize on Medicare beneficiaries behavioral tendencies, MA plans have kept their premiums low, while introducing other revenue-enhancing and cost-saving measures, including higher cost sharing and narrower physician networks.
Contributors to MA growth. L.E.K. consultants identified three groups that contribute to the growth of MA plans: consumers, health plans, and the government. According to L.E.K., "consumers like Medicare Advantage plans because they offer predictability, additional benefits, care coordination, and lower estimated total annual health care costs than traditional Medicare and Medicare supplements." Health plans like MA plans "because they make more money by yielding higher nominal revenue and operating margin with per-member per month revenue." Finally, "the government supports MA because plans effectively use cost trend management tools rather than a fee schedule."
Reasons for seniors to move to MA plans. According to the L.E.K. consultants’ report, much of the growth will come from traditional Medicare. Seniors move to MA plans because out-of-pocket costs tend to be larger in FFS Medicare. The consultants attribute the senior migration to MA to a number of factors, including:
- annual increases in expenditures for physicians and other professional services, which result in increases in out-of-pocket expenses for beneficiaries, including the 20-percent coinsurance traditional Medicare beneficiaries are required to pay;
- Medicare beneficiaries experiencing increases in age-related chronic disease may be convinced that they need the care management MA plans provide;
- uncertainty of the future of Medicare supplements due to increased premiums, higher medical costs, and increased desire for care coordination, and a provision in the Medicare Access and CHIP Reauthorization Act (MACRA) (P.L. 114-10) that bans Medicare supplemental insurers from selling policies that cover the Medicare Part B deductible will begin January 1, 2020;
- growth in state offerings of managed care plans available to dual eligibles (Medicare beneficiaries that are also eligible for Medicaid); and
- employers offering retirees MA employer-group waiver plans rather than group retiree health coverage.
Payers moving to the MA market. The foremost reason payers are following the Medicare Advantage is that the MA market is a stable market. Moreover, MA members are easier to get and keep and have fewer health needs. Furthermore, payers like the MA payment structure, Les Masterson explained in an article in Healthcare Dive. Additional reasons for payers to move to the MA market, include:
- a steady stream of new eligible beneficiaries, many of whom choose MA;
- members usually do not switch back from MA plans after leaving traditional Medicare;
- payers can easily convert members from traditional Medicare to MA via marketing campaigns;
- MA-enrollee demographics are usually people who once had an employer-based plan, so they know insurance and how health care works, and usually do not have health care needs; and
- CMS pays MA plans upfront for covering people with high health care costs, and payers have had stable payments from CMS.
Actions for Health Plans to Promote Growth
In his article in HealthPayer Intelligence, Thomas Beaten predicted that 2018 will be a year in which payers implement strategies to improve growth in MA markets. These strategies involve the increased use of social determinants of health to improve outcomes and expanded member engagement with health plans. Data-driven decision making capabilities may be expanded to: (1) optimize customer relationships; and (2) deliver health plan products at the lowest possible costs. He noted that as social determinant data becomes more widely available, payers will have more opportunities to take socioeconomic circumstances into account when engaging with members and their providers.
P.D. Power noted that "despite rapid-fire growth"… in Medicare beneficiary enrollment in MA plans, "few health plans are proactively marketing their offerings to consumers and all but a select few plans are falling short when it comes to successfully addressing provider integration and access to care for their members." Specifically, health plans are missing premarketing opportunities regarding moving beneficiaries from current coverage to an MA plan. Only 11 percent of Medicare beneficiaries report that they receive any communications from health plans. In addition, P.D. Powers recommended health plans to focus on members’ satisfaction with the plan and ensure that members are given assistance in navigating the myriad of health care providers and managing associated costs.
L.E.K. consultants recommended that MA plans find ways to grow their offerings by expanding into new counties, investing in targeting sales to age-ins, and adjusting product design to attract new members.
Challenges for MA Plans
The KFF report on physician networks in MA plans noted that one of the biggest trade-offs between MA and traditional Medicare is that MA plans have a more limited network of doctors and other providers. The size and breadth of provider networks can be an important factor for beneficiaries when choosing between traditional Medicare and Medicare Advantage and among Medicare Advantage plans.
Beaten identified a number of challenges for payers, including: (1) the domination of a small number of payers in the market; (2) CMS expectation for MA plans to improve efficiency and savings; (3) increased federal oversight, especially concerning possible overpayments to MA insurers; (4) CMS’ proposed expansion of the definition of quality improvement activity to include fraud reduction activities; and (5) CMS’ imposed improved efficiency in the traditional Medicare program, which will put downward pressure on the benchmarks used to set payment rates for MA plans, leading MA payers to either cut costs or trim benefits. CMS also is changing the medical loss ratio (MLR) requirements for MA plans, which means payers can add the administrative service to the MLR that plans are required to spend on health care.
MainStory: StrategicPerspectives NewsFeed EnrollmentNews MedicarePartCNews MedicarePartDNews PremiumNews QualityNews
Interested in submitting an article?
Submit your information to us today!Learn More