Medicare Advantage still 'only safe game in town' for insurers

While Medicare Advantage plans added nearly 900,000 members in 2016, enrollment is growing at a slower pace. Still, experts say the future of Medicare Advantage will be lucrative for insurers.

“It's the only safe game in town, in all of health insurance,” said John Gorman, a former CMS official who is now a healthcare consultant in Washington.

Enrollment in Medicare Advantage, the private, managed care version of the federal health program for seniors, reached nearly 18.7 million as of Dec. 1, according to the latest federal data.

UnitedHealth, Humana, Kaiser Permanente and Aetna held the throne for the most Medicare Advantage plan members. Enrollment in UnitedHealth's Medicare Advantage plans grew 13.2% to just shy of 4 million members, while enrollment in Aetna's grew 8.9% in 2016. Kaiser Permanente's Advantage plans grew by 5.1%

Humana, though still No. 2 in plan members behind UnitedHealth, lost nearly 40,000 plan members this year when a large group account went to a private exchange in January.

And Cigna, which was sanctioned by CMS in January for failing to comply with the agency's Medicare rules, only enrolled about 4,000 members in 2016. Because of the sanctions, Cigna wasn't able to participate in Medicare's annual enrollment period, which ran from Oct. 15 to Dec. 7. If the Bloomfield, Conn.-based insurer doesn't fix the problems soon, it could see its Medicare membership plummet.

Cigna and Humana were both hit by lower quality ratings, which may deter would-be enrollees from picking their plans.

Medicaid managed care insurer Centene, which has been investing heavily in its Medicare Advantage business, saw enrollment explode to more than 302,000 from about 34,000 last year, largely due to its recent acquisition of Health Net.

While Medicare Advantage enrollment grew 5% in the 12 months since Dec. 1, it has slowed in the last couple of years. It was up 6.8% year over year at the end of 2015 and 9.8% in 2014.

Part of the slowdown can be attributed to funding cuts imposed by the Affordable Care Act starting in 2012 and phased in over the last five years, Gorman said. Those cuts were devised to help offset the cost the ACA exchanges and bring Advantage payment rates in line with traditional Medicare.

Medicare Advantage rates are based on the trends and utilization of traditional fee-for-service Medicare plans and adjusted for plan members' risk scores. Before the ACA, Medicare was paying private plans at a much higher rate than the cost of fee-for-service benefits. They reached a high of 114% of traditional Medicare payments in 2009. But the Medicare Payment Advisory Commission said in December that payment rates have evened out.

“This was going to be the leanest year in terms of the benchmark payments to the plans,” Gorman said. In response to the cuts, plans reduced benefits and raised premiums, among other cost-saving measures. Plans are likely to see a boost in payments in 2018, he said. “Then you'll see a return to richer benefit designs with lower premiums and out-of-pocket costs.”

Gretchen Jacobson, an associate director with the Kaiser Family Foundation's program on Medicare policy, said there's not enough data available to know if Medicare Advantage benefit designs have truly gotten skinnier because of the funding cuts. But premiums, she said, have been relatively flat while caps on out-of-pocket costs have increased 25% on average since 2011.

Gorman said he expects annual growth in Medicare Advantage enrollment to hover between 5% and 7% in the coming years barring any major legislative changes to the market. It will be the safest option for insurers as the Trump administration and Republicans in Congress work on legislation dismantling the ACA, which many observers worry will cause the individual insurance market to collapse unless a replacement plan is adopted at the same time.

And while Republicans are also signaling they want to overhaul Medicare, it's unlikely they would do anything to undermine the Advantage program.

House Speaker Paul Ryan favors turning Medicare into a premium support system. Beneficiaries would receive vouchers to purchase a private plan or traditional Medicare coverage. The specific implications for insurers are unclear because “everything depends upon the little fine details,” and so far, there are few details available, Jacobson said.

Gorman, however, said the model “would be gasoline on the fire” of Advantage enrollment. Regardless, he said, insurers will take steps to expand their footprints in the program through mergers—like Centene's Health Net deal—and entering new markets.

In November, WellCare Health Plans said it would acquire Medicare insurer Universal American Corp. for $800 million. While Medicare Advantage already represents about 27% of WellCare's annual revenue, the deal with Universal American is likely to add to that significantly. Moreover, about 70% of Universal American's 114,000 Medicare Advantage members are in plans with at least four stars. That'll boost WellCare's overall Medicare Advantage plan quality ratings, which have been low.

Aetna's Medicare Advantage business will soar if it clinches the pending acquisition of Humana. Even after selling off Advantage assets to Molina, which Aetna proposed as a way to resolve the U.S. Justice Department's antitrust concerns, the deal would probably still put the combined company ahead of UnitedHealth as the biggest Advantage carrier.

A trial on the Justice Department's antitrust challenge wrapped up Dec. 21 and a decision is expected by mid-January. The case hinges on whether the judge buys Aetna's argument that Advantage plans compete with traditional Medicare.

More than 2,000 Advantage plans will be offered in 2017. A quarter of all Medicare beneficiaries will have a choice of plans sold by three or fewer insurers, according to a Kaiser Family Foundation brief. The average beneficiary, though, has a choice of plans from six companies and 19 plans.