Payers eye Medicare Advantage for growth
DRG analysis looks at why it's a smart move
Uncertainty clouds many sectors of the health insurance marketplace following Republicans’ recent failure to repeal or replace the Affordable Care Act. With or without Congress, many tools remain available to Donald Trump to undermine Obamacare, and the president’s recent rhetoric suggests he is willing to use them.
The exchange market will be drastically destabilized if Trump follows through on a threat to withhold subsidies to insurers that allow them to reduce out-of-pocket costs for consumers. The off-exchange commercial market also could take a hit if the administration moves to weaken Obamacare’s employer mandate by, for example, not enforcing it or rewriting the federal government’s definition of a full-time employee to be less inclusive. Managed Medicaid enrollment could also be reduced because of forces outside the U.S. House of Representatives and Senate. Many states have ideas for tightening enrollment eligibility, and their proposals are likely to find a receptive audience in the Trump administration. Arizona, for example, will continue to submit waiver proposals, such as work requirements, denied by the previous administration.
But there remains at least one haven of stability amidst the choppy seas of the American health insurance industry: managed Medicare. Many payers have taken note and are increasingly looking toward their Medicare Advantage plans to stabilize and grow their business. A Decision Resources Group analysis of Medicare Advantage enrollment and penetration data confirms there are opportunities for substantial enrollment gains nationwide. More on that, including forecasts for 2018 managed Medicare enrollment, below.
Like the Affordable Care Act, Medicare Advantage provides private coverage heavily subsidized by the federal government, but without the political baggage associated with Obamacare. The program is popular and serves a powerful voting bloc (seniors), which effectively shields it from the type of political opposition that would threaten insurers’ enrollment or margins. To the extent Medicare changes are under serious consideration in Washington, they would serve only to increase managed care’s role in administering benefits (e.g., House Republicans’ call for a premium support system and a proposal from Democrats’ to allow younger Americans to “buy in” to Medicare).
Even under the status quo, the percentage of Americans who are choosing Medicare Advantage over traditional fee-for-service Medicare administered by the federal government continues to grow steadily. Add to that an increasing number of Baby Boomers retiring each year, and it’s not hard to understand why payers see an attractive growth opportunity: It’s not just their slice of the pie that’s getting bigger, but also the pie itself.
The nation’s leading Medicare Advantage carrier, UnitedHealthcare, saw its MA business jump 17 percent to $16.7 billion in the second quarter, and CEO Steven Nelson said on the earnings call that he can see MA penetration among Medicare beneficiaries “approaching 50 percent” in the years ahead. No. 2 Humana is hiring hundreds at its Louisville headquarters to handle the anticipated workload during the upcoming open enrollment period, according to Louisville Business First.
Upstarts also are diving in. Clover Health, an MA provider that heavily utilizes data science to manage members’ care, recently achieved “unicorn” status and is expanding from New Jersey to three other states. And Minnesota-based startup Bright Health is partnering with local provider networks to bring its accountable-care-organization model to MA markets in Alabama, Arizona, and Colorado in 2018.
DRG’s analysis of enrollment data supports a bullish outlook for Medicare Advantage. The penetration of Medicare Advantage plans soared from 24 percent of the Medicare-eligible population in 2009 to 33 percent in 2017. As a result, while the total number of people eligible for Medicare increased at a compound annual growth rate of 3.25 percent over that period, the number of Medicare Advantage enrollees rose more than twice as fast at a CAGR of 7.8 percent.
We expect this dynamic to be even more pronounced in 2018, when DRG forecasts the number of Medicare-eligible individuals will grow 1.5 percent to 59.4 million while the number of Medicare Advantage enrollees grows 8.1 percent to 21.2 million, pushing Medicare Advantage penetration to nearly 36 percent. If the current trends hold, Medicare Advantage penetration will reach the 50 percent mark, anticipated by UnitedHealthcare’s Nelson, in 2026. But that forecast assumes that there will not be diminishing returns as Medicare Advantage saturation increases.
If the state of Minnesota is any indication, we should not expect Medicare Advantage penetration to hit 50 percent quite so fast. With a penetration rate of 57 percent, Minnesota is Medicare Advantage’s most popular state. But, while the number of Medicare Advantage enrollees continues to grow faster than the overall Medicare-eligible population, the growth rate has slowed substantially since 2009, when Minnesota’s penetration rate was 36 percent, just above the national penetration rate today.
In conclusion, while the steady growth in the number of retirees in the U.S. presents enrollment opportunities across the board, the data suggests payers will maximize that potential if they focus especially on markets where the penetration rate is near or below the national average.