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Medicare Advantage Trends

By June 13, 2017Commentary

The Medicare Advantage arm of the federal program to provide health care for the elderly has shown steady growth over the last decade, and, despite whining from plans about changes to and inadequate reimbursement formulas, has provided substantial profits to the managed care insurers participating in the program.  A new Kaiser Family Foundation report gives an update on MA enrollment.   (KFF Report)   In 2005 there were 5.6 million beneficiaries in Medicare Advantage, or 13% of the total.  For 2017, there will be 19 million beneficiaries in MA, or 33% of all recipients.  About two-thirds of this enrollment is in HMO-type designs, with the remainder in PPOs.  About 20% is group coverage, mostly employment-related coverage arranged for retirees.  MA grew in every state in 2017 and several states have 40% or more of their Medicare beneficiaries enrolled in MA.  Penetration generally is greater in urban areas.  Unfortunately, this enrollment is concentrated in a few large national health plans, particularly United Healthcare with 24% of the total market and Humana with 17%.  In 17 states one plan has at least half the market and in every state but Oregon, the three largest firms have over 50% of the market.  This concentration may limit competition for beneficiaries in the form of better benefits or lower cost-sharing, and it may mean CMS is paying more as plans may not bid as aggressively as if there were more competitors.  But so far, premium growth has been modest or non-existent, including for MA plans that include drug coverage.  Over 80% of beneficiaries have a choice of at least one zero premium MA plan.  And cost-sharing amounts have also stayed stable for most plans.

An important issue is what the growth of Medicare Advantage enrollment means for the program overall.  It is very likely that the program could be covering 40% of all beneficiaries with five years and perhaps 50% within ten years.  At some point CMS has to start wondering about why it keeps a FFS branch, when MA provides better quality at a lower cost for comparable benefits.  It is time to have a serious discussion about a voucher-based system for all Medicare, with a wider range of plans, including some that look like traditional FFS Medicare, but managed by a plan.  It is also time for CMS to at least begin demonstrations with direct capitation payments to providers who are capable of taking full-risk.  This could likely lower administrative costs and payments by CMS by several percent.  The MA program has generally been a success, especially for beneficiaries, and it is time to expand the concept more rapidly.

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