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New regulations challenge Medicare Advantage products, but HealthSpring is relying on the future outlook for larger plans in the MA market
New regulations and a tighter squeeze on payment rates challenge Medicare Advantage (MA) products. However, it's unlikely that the private-market Medicare program will witness a mass exodus of plans as it did in the late 1990s under Medicare+Choice. Plans with the most scale will survive.
Medicare's policy priorities have alternated over the years between expanding access and holding down spending, varying the attractiveness of the market for payer organizations. Today, the Centers for Medicare & Medicaid Services (CMS) contracts with nearly 600 MA organizations nationwide.
"You have 11 million seniors enrolled now who really like the product for the most part, and they're getting a lot of savings from it," Fritch says. "We believe they're getting better outcomes and quality, and it's going to be hard for politicians to take that away from people, although they try. I certainly hope the voters hold them accountable."
The ongoing strength of the MA program historically has been that seniors pay close attention to their healthcare and they want more robust coverage. Today, 24% of Medicare enrollees are covered by an MA product, and total MA enrollment is expected to increase by 5% next year.
"When you give them something they really like and it's providing good value to them, it's hard to take that away," Fritch says. "And all those factors exist if Medicare Advantage is done right."
Doing It Right
MA payments for 2010 average about 109% of FFS costs. As payments are phased down over the next six years under the Patient Protection and Affordable Care Act (PPACA), observers predict that the stronger plans will endure-large plans that function efficiently enough to withstand the rate reduction. Lawmakers will likely keep a close eye on all MA plans, possibly aiming to weed out products with low enrollment.
Tip Kim, vice president in L.E.K. Consulting's healthcare services practice, says the current reimbursement regime in Medicare Advantage will create financial pressure that reduces the number of plans. However, in terms of membership, the downturn will not be as dramatic as it was when Medicare+Choice plans retreated. Back then, members defaulted to traditional FFS Medicare.
"Risk-adjusted reimbursement, despite coding intensity adjustments and baseline pressures, give the opportunity for MA plans that have an active care management infrastructure in place to maintain viability and sustain growth," Kim says. "The paradox is that as you treat sicker seniors-and hence collect more dollars per-member per-month-you create more headroom to create value for the member, the provider and the plan."
Kim says not every plan will be able to sustain that strategy, and there are diminishing returns to consider. But today's MA plans are much stronger than the Medicare+Choice plans of the past, and seniors are also more comfortable with enrolling in managed care, he says.
"Our research shows fairly definitively that once seniors have shopped for a managed care plan, they will remain in managed care-even private fee-for-service members choosing a PPO or HMO plan-if an option is available to them," he says.
There is a rationale for feeling bullish about many, although not all, players in the Medicare Advantage market, Kim says. Many plans are able to beat traditional FFS on value and will remain competitive.
In fact, HHS Secretary Kathleen Sebelius has recently declared Medicare Advantage "stronger than ever."