The growth in Medicare Advantage (MA) enrollment since the passage of the ACA in 2010 has been nothing short of remarkable. Enrollment in such plans has doubled since the law’s enactment despite significant cuts in payments to MA plans embedded in the law. The baby boom generation’s comfort with managed care, along with a restructured bonus payment system, has driven unabated growth since 2010—and there is no end in sight. MA enrollment is projected to increase to between 42% and 50% of total Medicare enrollment over the next decade, with steady growth expected for the foreseeable future. Moreover, surging demand is driving supply. In 2019, Medicare beneficiaries will have 20% more plans to choose from nationally—over 3,700 plans—and new market entrants have made aggressive bets on MA growth.
As plans enter and expand within their MA markets, they will, however, confront changes in both pricing and benefit design. The demands of competition will drive more markets to zero-premium policies, already a common competitive dynamic in markets heavily penetrated by managed care. The growth in these policies, in turn, will increase the pressure to design and deliver more expansive benefits that take a more proactive and holistic approach to care delivery and health maintenance. Meanwhile, MA plans are facing relentless pressure to get a star rating of four or five because high star ratings are essential to staying competitive.
MA plans are aware of these dynamics. Large national payers have been purchasing and developing capabilities in the post-acute and palliative care realm, services that were previously an afterthought for many MA plans—if they thought about them at all. Moreover, third-party vendors have arisen to enable MA plans to manage the post-discharge path of care more rigorously and effectively. Such investments are critical. Variability in spending on post-acute care services represents roughly 75% of the total per capita variability in the Medicare program. Any effective, sustainable strategy in a zero-premium environment requires thoughtful and effective interventions to reduce variability.
As plans and providers collaborate to manage post-discharge care, they will also need to take heed of the nonclinical variables. Limitations in performing activities of daily living (ADLs) and social determinants of health have as great an impact on health care spending among the elderly as the presence of chronic conditions. These kinds of variables are most effectively addressed in the transition to the home and while care is being delivered there.
Mitigating the adverse health effects related to diminished ADLs and social determinants of health requires services and interventions for which Medicare has not traditionally paid. But, recognizing that rapidly aging Medicare beneficiaries require a comprehensive approach to health, CMS has authorized MA plans to offer nonskilled services as part of their plans for the first time in the 2019 benefit year. These personal care and private duty services can be essential in allowing Medicare beneficiaries to remain healthy and at home.
The mere fact that MA plans continue to develop post-acute care networks provides plans with a vehicle to introduce new benefits and innovative designs.
The timing of this new category of benefits is fortuitous because it will build on the post-acute care investments that MA plans have been making over the past few years. MA plans have been building (or will soon need to build) flexible platforms that endow them with capabilities to deliver both skilled and nonskilled services in the home, all in service of supporting the enrollee’s health status—and avoiding the need for care in the hospital and other high-cost settings.
The actuarial uncertainty surrounding these new benefits likely means conservative uptake of this new class of benefits initially. As MA plans feel their way along, the effects are probably going to have a greater impact on patients’ satisfaction than on bottom lines. Nevertheless, the mere fact that MA plans continue to develop post-acute care networks provides plans with a vehicle to introduce new benefits and innovative benefit designs to their plans. Will the new benefits mean more MA plans will start charging premiums? Probably not in the short run because it would put them at a competitive disadvantage. Plans that elect to offer the new benefits will have to do so as an investment in their enrollees’ health—and if that works, then it should have a positive impact on costs and place downward pressure on premiums. If it doesn’t work, then plans will be faced with the choice of recouping their investment through higher premiums, cutting back benefits, or—the best option—figuring out ways for the added services to have the intended effect of improving enrollees’ health.
It is striking how the rapid growth of MA enrollment and the increasing competition for these beneficiaries have created a robust market for innovation in design and delivery for a 35-year-old program. Over time, the ability to compete profitably in zero-premium markets will require MA plans to deliver care to address all the risk factors that affect a patient’s use of health care resources and increase the chances that people can live full, independent lives as long as possible.