Posted: 15 Apr. 2021 10 min. read

Second wave of boomers will likely continue to drive MA growth, but competition for members could get fierce

By Gaurav Mehta, senior manager, and Michael Cohen, specialist leader, Deloitte Consulting LLP

Since its inception nearly 20 years ago, enrollment in Medicare Advantage (MA) plans has regularly outpaced official forecasts. The 2020 Trustee Report, for example, projected MA penetration would reach 43.2% in 2029. According to the latest data from the Centers for Medicare and Medicaid Services (CMS), enrollment is already approaching that penetration rate.

We expect steady enrollment growth in MA will continue in the first half of this decade. This will likely be driven by a combination of trailing-edge boomers (the population that will age into Medicare over the next 10 years) reaching age 65 and selecting MA at a higher rate, and existing enrollees switching from traditional Medicare to MA. This has the potential to push MA enrollment to more than 35 million by 2025, based on Deloitte’s estimates. That would represent more than a 50% penetration rate. However, it is possible that without policy changes to expand Medicare eligibility (as President Biden suggested on the campaign trail) or new payment policies, that MA enrollment could slow in the second half of this decade. As enrollment growth begins to slow, the basis for competition would likely shift from a focus on growth to an emphasis on cost-management, which would allow health plans to continue offering competitive benefits.

To succeed in a more competitive environment, MA plans should invest in new capabilities to attract members and control costs. For example, rather than continuing to rely only on mass phone calls and advertisements, MA plans should consider how advanced analytics could be used to segment—or even micro-target—prospective enrollees.

What’s next for MA plans?

Here are three key trends we are tracking:

  1. Spending and forecasts: Many MA plans reported favorable operating margins in early 2020. This was due in part to depressed spending on medical care between March and May 2019 due to the COVID-19 pandemic. We are still waiting to get the full picture of spending for the rest of the year. Care related to COVID-19 likely continued to impact spending for the remainder of the year, as did the increased use of virtual health. We will be interested to see the latest forecasts for both traditional Medicare and MA in the forthcoming Trustees report. These forecasts are likely to provide a fuller picture of the overall impact COVID-19 had on spending, including mortality rates among older Americans. The forecasts might also compel some policy focus if they show—as is expected—a depletion of the Part A Trust Fund in the near term. In addition, COVID-19 might have delayed members from obtaining routine preventative care and screenings. This could mean some medical issues aren’t detected early, which could have a negative impact on health outcomes for members and could impact future medical costs.
  2. Potential policy opportunities and threats: Public-policy initiatives could create new opportunities and threats for MA plans. The federal budget deficit—or the desire to enact policies that could increase spending—might drive some lawmakers to propose cuts to federal health care spending, including in Medicare. Such spending cuts might offset the costs of program expansions, including lowering the eligibility age for Medicare. This idea was part of President Biden’s campaign platform. Taken alone, Medicare expansion might be a growth opportunity for MA plans by adding younger (and likely healthier) new enrollees to Medicare risk pool. However, the president has an ambitious policy agenda to spend more on infrastructure, climate change, and to address equity and the economy.1 These priorities might prompt lawmakers to put the squeeze on Medicare in ways that could directly or indirectly affect payments in MA. The latest report from the Medicare Payment Advisory Commission, which advises Congress, determined that Medicare is paying more for MA enrollees than it is for people in the traditional program. This could support initiatives to reduce payments in that program. Moreover, MA could face new challenges if Congress eventually approves legislation to create a public insurance option, as Biden proposed during the election. A new government-run health insurance program could command lower payment rates with providers, which might push providers to negotiate higher payment rates from MA plans.
  3. Interoperability: As the July 1, 2021 enforcement deadline approaches, many health plans are making progress toward their interoperability goals. While some organizations appear to be taking a purely compliance-focused view of the topic, many organizations see the interoperability rules as a strategic opportunity to differentiate themselves in the market, drive care coordination, analyze population health trends, manage benefits, and track health outcomes and costs more effectively. We outlined some of these strategic opportunities in our recent paper on price transparency and interoperability in health care.

MA plans should innovate and plan for potential changes

MA plans should focus on maturing their capabilities in anticipation of likely increased competition and potential policy changes to the program. They should also try to identify ways to meet the needs of their enrollees while innovating in areas including product design, operations, and network strategy. CMS continues to provide flexibility on product design, and MA plans should take advantage of that flexibility. The agency could also introduce or change the array of innovative pilots currently underway. MA plans might be able to participate directly in these pilots, or adopt them, if they work well in the fee-for-service program.

To thrive and grow in an increasingly competitive market, MA plans should consider the following key focus areas for future investment:

  • Digital engagement and personalization: Our recent research shows that MA plans are making their way toward the Future of HealthTM by increasingly building capabilities to create virtual modalities for presales, enrollment, and care delivery/coordination processes. Trailing-edge boomers appear to be more willing than leading-edge boomers to use technology to access care outside of traditional medical settings. Therefore, digital front door applications will likely become critical for more real-time and personalized member engagement. Coupled with mobile technologies, the application can be a gatekeeper and record keeper of care for members. The digital front door would likely require major investments around coalitions of digital solutions. For more details, see Deloitte’s 2020 Health Care Consumer Survey.
  • Drivers of health and health equity: Over the next 20 years, we expect health care will emphasize the early detection and prevention of disease, rather than focus on treating illnesses. Deloitte’s vision for the Future of Health envisions a broader, deeper, and more holistic view of health that includes physical and mental health—in addition to social, emotional, spiritual, and even financial health. In addition, many health plans have been focused on implementing value-based care (VBC) programs to encourage hospitals, health systems, and clinicians to take on risk, improve quality, and reduce total cost of care. Social, environmental, and lifestyle factors (also known as social determinants or drivers of health) often have a significant effect on an individual’s wellness. They could also reveal gaps in health equity and provide useful clues on how to close such gaps. MA plans should try to identify ways to incorporate these factors into their member-engagement and care-management models. During the pandemic, some states and MA plans used data related to health drivers to identify members who had high risk of infection, high risk of severe comorbidities if diagnosed with COVID-19, and high risk of mental-health issues due to social isolation. In the future, the use of such data will likely intensify. Investments in the drivers of health could yield long-term returns in the form of lower medical costs, more equitable care, and higher member satisfaction.
  • Precision cost, quality, and care analytics: Many MA plans are becoming more adept at using data-driven approaches to identify focus areas for affordability and quality interventions—both in the acute and chronic care settings. They are taking advantage of evolving data, interoperability, and the construction of integrated data hubs/lakes. Various analytics models/processes typically exist in different departments of the MA plan. A challenge will be to integrate the data in a timely manner across various parts of the organization. This can help users gain insight and make decisions that support better patient care and a more satisfying patient experience. We outlined this type of connected future—and opportunities for health plans—in our 2019 report.
  • Automation and artificial intelligence (AI): Within any MA organization, employees might be spending too much time on manual and repetitive tasks. This can include everything from reviewing prior authorization requests to interpreting medical charts. MA plans should consider ways to incorporate a real-time review of prior authorizations by leveraging machine learning capabilities. They could also streamline the chart-review process by leveraging OCR/NLP capabilities. Beyond these two examples, automation and AI hold promise in their ability to reduce overall administrative costs and free up employees for more value-add tasks, as we noted in our report about the smart use of AI in health care.

While growth will likely continue to be a priority for MA plans over the next few years, competition could increase. MA plans should prepare now and consider investments in cost-management capabilities that could help them successfully compete. They should also continue to innovate the product offerings for their existing and potential members.  

Acknowledgements: Abby Ruiz de Gamboa, Lucia Giudice, Nancy Chen, Stacy Lei, Yuchen Chen 

Endnotes

1.  www.whitehouse.gov/priorities

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