A surging interest in Medicare Advantage among the retirement-aged population and the fast-consolidating ranks of private payers has some experts asking whether the program might be the future of Medicare overall.
As it stands, one in three Medicare beneficiaries, about 18 million people, are already enrolled in Medicare Advantage and those numbers are only expected to climb as 10,000 baby boomers a day turn age 65.
While all Americans become eligible for Medicare at 65 years old, allowing insurance companies to take on that risk as managers of those benefits is attractive to consumers because these programs often come with lower out-of-pocket expenses and extra coverage beyond what is just covered in Part A and Part B of Medicare. Also, federal subsidies mean some beneficiaries pay no premium.
And despite federal cuts in payment rates in April, the Medicare Advantage program continues to grow.
"We view Medicare Advantage as an increasingly favorable and critical business for health insurers in the medium term," said Standard & Poor's analysts James Sung in a recent report.
"It remains the largest and most advanced retail market in the country."
That's good news for San Francisco-based Clover Health, which had based its entire business on its Medicare Advantage plans. CEO and co-founder Vivek Garipalli said he doesn't think the payment cuts will make a difference in the popularity of the program.
"I don't think it will stop the growth of Medicare Advantage," Garipalli said "The cost to the consumer will still be lower than Medigap or Part D. It would probably have to be a 10 percent cut or maybe more to make a difference."
Venture capitalists are also bullish on Clover Health, having invested $100 million in the startup in 2015.
"Medicare Advantage is an amazing system that has evolved," Garipalli said. "If structured right, a company could build a logical business model."
Understanding the model
Medicare Advantage insurers get paid a monthly premium to pay for a member's care. The premiums are risk-adjusted and tied to the individual's acuity level.
Plans also receive higher payments for members with more chronic conditions, and therefore higher risk scores.
"Ninety-three percent of costs Medicare Advantage are driven by comorbid conditions," Garipalli said. "The return on investment is helping patients with chronic diseases get better. It allows you to take savings and lower costs for the following year to grow more market share."
Federal policy in 2009 gave the private Medicare plans 14 percent more per enrollee than for the cost of care of beneficiaries in traditional Medicare, according to the Kaiser Family Foundation. But the Affordable Care Act in 2010 reduced the federal payments to these plans over time to bring them closer to the average costs of care under traditional Medicare.
According to Paul Keckley, a former consultant with Navigant who now works independently, with the 14 percent differential being cut a little every year, it will be important to watch how restrictive Medicare Advantage will become.
"Medicare Advantage is still attractive, still a lot of growth in that market," Keckley said, adding that political predictions that Medicare will go broke and eventually go away will never play out.
For one, Medicare enrollees, such as military members who are paying no copays, would protest loudly if Medicare ended, he said.
"It's also not likely anyone in near term is going to raise the age of eligibility," he said.
Still, concerns like these are what help Medicare Advantage gain traction.
"With the right alignment, it creates a much longer future for Medicare over time," Garipalli said. "Without a doubt it's a major solution for lowering the long-term costs for Medicare and beyond Medicare."
Clover Health's structure is heavily dependant on information technology to manage population health. With this data, it's possible to manage a diverse population, to drive improved outcomes and to make a larger margin than the competition, according to Garipalli.
Clover Health's plan is an open PPO network that allows members to go in or out-of-network for care.
"In most counties, we're the lowest-cost plan on the market," Garipalli said. "Hospital admissions are about 30 percent lower than the competition."
As Aetna predicts its $37 billion acquisition of Humana to go through during the second half of this year, the insurer is bullish on Medicare Advantage plans, Chairman and CEO Mark Bertolini said during an April 28 investor call.
Aetna's Medicare Advantage, and traditional Medicare market grew year over year, Bertolini said. Acquiring Humana and its Medicare Advantage market poises the company to become the largest Medicare Advantage insurer in the country.
While Aetna's commercial medical membership fell by over 1 million from 2015 to this year, Medicare Advantage added 127,000 members during the first quarter of 2016.
Medicare Advantage realized a 9 percent individual market growth, which exceeds overall Medicare Advantage gains nationwide, Bertolini said.
"Medicare Advantage remains an important growth lever for Aetna," Bertolini said.
UnitedHealthcare, which is getting out of the exchanges in most states due to losses, saw a 10 percent increase year over year in its Medicare and retirement business, the nation's largest insurer said in its first quarter financial report. The growth was due to increased enrollment in Medicare Advantage and Medicare Supplement Insurance plans.
The big question, Keckley said, is whether health systems that have the scale to manage larger numbers will take on the risk themselves by starting plans that could compete with Medicare Advantage.
Time will tell, but Medicare Advantage is still growing by 3 to 4 percent per year, said Chris Dawe, a former health policy advisor to the White House who is now policy director and a principal for Evolent Health.
And even though healthcare providers are become responsible for the total cost of care of a population, managing that total cost through Medicare Advantage makes sense, Dawe said. It gives providers a financial upside to move patients out of acute care settings. Medicare Advantage gives them a premium that's appropriate for the cost of the population over time.
"It helps providers, helps health systems manage care, keeps people healthy," Dawe said. "From that perspective Medicare Advantage is as close to the gold standard as you can get."