The future for Medicare Advantage: A new generation of enrollees may ask more of their plans

Health Care Current | February 14, 2017

This weekly series explores breaking news and developments in the US health care industry, examines key issues facing life sciences and health care companies and provides updates and insights on policy, regulatory, and legislative changes.

My Take

The future for Medicare Advantage: A new generation of enrollees may ask more of their plans

By Sarah Thomas, Managing Director, Deloitte Center for Health Solutions, Deloitte Services, LP

Even as the Congress debates repealing and replacing the Affordable Care Act (ACA) – which has at its heart a government program offering coverage through private plans in the individual market – another government program using private health plans may be a bright spot, both from the beneficiary and industry perspective.

The Medicare Advantage (MA) program has long offered attractive coverage options to Medicare beneficiaries in many parts of the country. From a beneficiary’s point of view, MA has offered a combination of coverage and premiums that can be a good deal relative to a Medigap plan and can offer better financial protection from Medicare’s cost-sharing requirements than going with Medicare alone.1

From the perspective of health plans offering products in the MA market, this program has been the most consistent source of top-line growth and bottom-line results across the health plan sector. The MA market has grown steadily despite ACA reductions to MA health plan payment rates. And, the market will likely continue to expand in 2017, though somewhat more slowly due to the continuing impact of ACA payment cuts. Today, one-in-three Medicare beneficiaries receives benefits from a private MA plan rather than the traditional fee-for-service (FFS) Medicare program.2

Although not monolithic, MA enrollees have tended to have certain characteristics. They have been:

  • Slow to switch plans once they’ve chosen one
  • Not big users of digital tools to choose providers or plans
  • Low users of data on quality (e.g., hospital ratings)

But, this may begin to change as the next part of the Baby Boomer generation begins aging into Medicare.

The next wave of Baby Boomers: The “trailing edge”

Approximately 26 million Baby Boomers will turn 65 and become eligible for Medicare through 2030.3 “Trailing-edge” Boomers – those born between 1956 and 1964 – are the next wave of Medicare enrollees; most “leading-edge” Boomers – ones born between 1946 and 1955 – already are in Medicare. The good news for plans is that trailing-edge Boomers may be more likely to select MA products, as they typically have extensive experience with employer coverage, networks, benefit designs, and health plans that offer MA products.

Trailing-edge Boomers differ from the leading-edge Boomers. As we recently described in Understanding the next wave of Medicare enrollees, national data on population-level trends and Deloitte’s surveys of health care consumers show that, compared with leading-edge Boomers, trailing-edge Boomers:

  • If women, are more likely to have been in the workforce, so potentially even more likely to have chosen benefits in the workplace.
  • Are retiring in new areas of the country, staying in their homes longer as they turn away from traditional retirement communities, and have fewer resources going into retirement.
  • Have higher rates of diabetes and obesity but have better control of their health conditions and are less likely to smoke.
  • Turn to different sources when seeking information about health plans. Many are dissatisfied with their current health plan.
  • Use health technology more and are interested in new technologies to support aging in the home (e.g., telemedicine, remote-patient monitoring). However, privacy and security concerns may give many pause as these technologies become increasingly available.

What should health plans do to prepare for these new beneficiaries?

Many health plans have been targeting, attracting, and engaging leading-edge Boomers since the first ones turned 65. But, the next wave is different and will likely require different strategies, tactics, and capabilities to win with this important customer segment. Here are some ideas:

  • To address their interest in staying home, health plans should find new partners, such as home- and community-based organizations, which offer services that can provide care in preferred settings longer.
  • Care managers and transition coaches are staff that may also help beneficiaries stay at home and manage their chronic conditions.
  • Segmentation – whether to determine appropriate outreach and communication strategies or to understand trailing-edge Boomers’ patient-activation levels – could help health plans retain these enrollees longer.
  • Investing in tools to help manage chronic conditions or integrating technology into their care could help trailing-edge Boomers stay activated in their health care and engaged with the health plan.

What about policy changes?

Republican administrations and lawmakers have, in general, tended to favor MA. Burgeoning ACA “repeal-and-replace” efforts could provide a series of opportunities and legislative vehicles for policymakers to influence the longer-term trajectory and sustainability of MA, perhaps by bolstering payment mechanisms and updating the MA administrative and regulatory model. Medicare reform packages (such as Speaker Paul Ryan’s premium support proposal) could dramatically reshape the future Medicare market landscape, including MA.

In the near term, while some regulatory and marketplace headwinds are likely, we forecast favorable conditions for the MA market, with high levels of confidence in the growth and performance potential of the MA line of business for health plans. But, key to future success will likely be knowing their new customers.

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1 Joseph Newhouse & Thomas McGuire, “How Successful Is Medicare Advantage?” June 3, 2014
2 Scott Harrison and Carlos Zarabozo, Medicare Advantage program: Status report (Washington, DC: MedPAC, 2016).
3 Medicare Payment Advisory Commission, “The next generation of Medicare beneficiaries” in Report to the Congress: Medicare and the health care delivery system. Washington, DC: MedPAC, 2015.

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Implementation & Adoption

Cost-sharing subsidies are a significant source of revenue for exchange plans

A new report from the Association for Community Affiliated Plans (ACAP) found that cost-sharing reduction (CSR) payments were a significant revenue source for health plans who insure low-income exchange enrollees. Health plans received $4.9 billion in CSR payments in 2015, which is up 64 percent ($2.1 billion) from $2.8 billion in 2014. Nearly 5.9 million individuals (56 percent of exchange enrollees) qualified for CSR subsidies in the first half of 2016.

Last year, the US House of Representatives challenged the legality of the CSR payments in court. The US District Court for the District of Columbia ruled in favor of the House, but stayed the ruling at the appellate level until this month. If the House wins, health plans participating in the exchanges could lose significant revenue.

Using data reported to the US Centers for Medicare and Medicaid Services (CMS), in 2014 and 2015, ACAP found that on average, health plans would have had consistently higher medical loss ratios (MLR) without the CSR payments. In 2014, the average reported MLR was 89.2 percent for health plans; without CSRs, this would have been 95.9 percent.

Low income enrollees do not receive the CSR payments directly. Instead, the US Department of Health and Human Services (HHS) pays health plans, which in turn reduce cost sharing in their benefits. Enrollees with incomes between 100 and 250 percent of the federal poverty level can qualify for CSRs if they purchase silver-level plans.

Related: New data from CMS show that 9.2 million individuals enrolled in the federal exchanges during 2017. An estimated 3 million are new, and 6.2 million are returning consumers. These figures do not include enrollment data from the state-based exchanges. Florida had the largest enrollment of any state, with 1,760,025 individuals purchasing plans on the exchange between November 1 and January 31.

(Source: Paul R. Houchens, Zachary J. Fohl, “Cost-sharing reduction plan payments under the ACA,” Association for Community Affiliated Plans, February 6, 2017)

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Study: Bundled payments do not lead to more hip and knee procedures

A new study found no relationship between participation in the Bundled Payment for Care Improvement (BPCI) initiative and an increase in lower joint replacement procedures. The CMS Innovation Center made the BPCI initiative a voluntary program intended to lower costs and improve quality of care. Some policy experts predicted that bundling would drive the number of procedures up.

Using Medicare fee-for-service data, the Altarum Institute found that between 2010 and 2015, the average annual number of lower joint replacements was slightly lower among BPCI participants than non-participants. During that time frame, the number of joint replacement procedures grew by 7.3 percent for BPCI participants, compared with 9.6 percent for non-participants.

The researchers concluded that demographics and market trends are driving the increase in procedures. Hospital consolidation is behind some of the increases. Market competition also affects the number of lower joint replacement procedures; hospitals in competitive markets performed more procedures.

Analysis: Many hospitals have lowered costs through bundled payments using several strategies. Deloitte analyzed bundled payments for hip and knee replacements in its recent “Navigating bundled payments: Key strategies to reduce costs and improve health care” study. Most of the health systems in the study indicated that savings for orthopedic bundles have come from the reduced use of skilled nursing facilities. According to CMS and The Lewin Group, the BPCI initiative saves $864 per joint replacement episode while maintaining quality and patient experience. These savings come from lower use of post-acute care following joint replacement procedures.

(Source: Wilson et al., “Debunking the argument that BPCI contributed to higher procedure volumes,” Altarum Institute, February 8, 2017)

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On the Hill & In the Courts

Tom Price confirmed as HHS Secretary

Last week, the Senate confirmed Representative Tom Price as Secretary of HHS. Before being elected to Congress, Price was an orthopedic surgeon. He represented Georgia’s 6th District in Congress since 2005 and also served as the Chair of the House Budget Committee since 2015.

Price testified at two hearings last month before the Senate Health, Education, Labor, and Pensions Committee (HELP) and Senate Finance Committee, where he spoke about his policy positions as potential HHS Secretary. According to his testimony from those hearings, Price will prioritize:

  • Reducing administrative burden from quality data reporting
  • Implementing truly interoperable electronic health record technology
  • Granting states more flexibility to design and operate their Medicaid programs through waivers

Price has also stated that he may reorganize the CMS Innovation Center. According to his testimony, Price supports bundled payment demonstrations for certain populations, but has raised concerns that some of the Innovation Center’s demonstrations are mandatory. Price has also discussed approaches to lowering drug prices. He has said he supports allowing Medicare to negotiate drug prices and reevaluating the role of pharmacy benefit managers in negotiation.

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Anthem-Cigna merger blocked in US District Court

Last Wednesday, DC District Court Judge Amy Berman Jackson ruled against the proposed acquisition of Cigna Corp. by Anthem, Inc. The two health plans initiated the deal in July 2015, but the US Department of Justice (DOJ) filed a complaint shortly after the filing. According to the DOJ, the merger would substantially reduce competition in the “national accounts” market – or plans sold to large employers, usually with more than 5,000 employers in at least two states. Analysts valued the acquisition at $48 billion.

The case rested on three main points:

The Court did not to rule on whether the acquisition would affect competition in the entire US large-group market. Instead, it focused on the fourteen states in which Anthem Inc. is the sole Blue Cross Blue Shield licensed insurer. Further, the Court declined to rule on whether the merger would harm competition in the other large-group markets where Anthem operates.

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MACPAC considers alternative approaches to Medicaid funding

The Medicaid and CHIP Payment and Access Commission (MACPAC) is reviewing policy options for capping federal Medicaid funds through the use of block grants, capped allotments, or per capita caps. The following design elements are ones that the group says Congress should consider when crafting alternative financing proposals. MACPAC will delve into each of these topics in future meetings.

Around the Country

Several states continue to urge Medicaid tweaks, not ACA repeal

As Congress debates the future of the ACA, several state insurance commissioners and governors are urging Congress hold off on repealing the ACA in full. Instead, they ask that Congress allow states to customize Medicaid for their residents. States continue to give this feedback in response to House Majority Leader Kevin McCarthy’s request for input on the impacts of ACA repeal (see the January 31, 2017 and December 13, 2016 Health Care Current issues).

State officials have recommended that Congress:

  • Reduce wait time for and provide more flexibility on waivers: The National Governors’ Association wants a quicker response time from CMS on Medicaid waiver submissions.
  • Lower eligibility threshold and work requirements: Arkansas Governor Asa Hutchison said that CMS should reduce the eligibility threshold for the expansion population while keeping the federal match rate. He also said that CMS should allow states to add work requirements under Section 1115 waivers.
  • Not cut DSH payments: Alabama Governor Robert Bentley says that Congress should not cut Medicaid Disproportionate Share Payments (DSH); scheduled cuts could reduce payments to Alabama hospitals by more than $100 million per year.
  • Keep the area wage index as is: Governor Bentley also said that HHS should abandon its planned changes to the Area Wage Index, which adjusts payments up and down to reflect the level of hospital worker wages.
  • Keep the enhanced federal match: Ohio Governor John Kasich and California insurance commissioner Dave Jones want to maintain enhanced federal match for the Medicaid expansion population.

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Report: Impact of the ACA on five health care marketplaces

The Brookings Institution recently published a report that looks at competition in the individual markets of California, Florida, Michigan, North Carolina, and Texas. The researchers found that pent-up demand for care and higher-than-expected costs were major challenges in these five states. The researchers were interested in why some markets were successful and competitive and how less competitive markets might be improved.

Major trends noted by the researchers in each state include:

The researchers concluded that four broad trends emerged from these case studies:

  • Health insurance markets are largely local; health plans rely on networks of providers to price themselves competitively with other insurers
  • Higher-than-expected claims costs drove much of the turmoil in the health insurance exchanges
  • Plans with narrow networks proliferated throughout the exchanges
  • Competition among health plans and providers is essential for a robust and competitive health plan market

(Source: Michael Morrisey, Richard P. Nathan, Alice M. Rivlin, and Mark Hall, “How has Obamacare impact state health care marketplaces?” Brookings Institution, February 2017)

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Breaking Boundaries

Building a more portable, less expensive MRI

Magnetic resonance imaging (MRI) has been a commonly used medical technology since the 1970s. MRI machines take images of soft tissues in the body so that physicians can identify injuries such as a torn ligament or a concussion. MRIs are often critical for early diagnosis of potentially life-threatening injuries. Because they are huge, costly machines, they are usually not located outside of a traditional hospital, such as in military field hospitals, ambulances, and sports arenas. Soldiers wounded in battle must be flown to a large hospital to get an MRI, and many underdeveloped countries do not have MRI machines. A smaller, more portable, less expensive MRI machine could expand the ability to diagnose more people quickly.

MRIs work by generating radio waves from water molecules in the body using a very powerful magnetic field. The process relies on a magnet, which weighs several tons. Researchers in different parts of the country are working to build a less powerful, but still effective, MRI machine. For the team at the Martinos Center for Biomedical Imaging in Boston, this means working with professionals from the fields of machining, electronics, and advanced computing to build a prototype out of wires, magnets, and circuits that uses two vertical walls with thin magnets woven in. The prototype is combined with software that allows the magnetic field to change rapidly and produce radio waves. These waves are about 500 times weaker than what is used in the standard MRI, but are capable of providing images of our bodies that can help guide diagnosis. This MRI has a weaker resolution and cannot provide as much detail, but can still provide the quality of images that can identify bleeds in the brain, damage from stroke, and tumors, among other injuries. The researchers estimate that the cost could come down from millions of dollars to around $50,000 for the smaller machine.

Researchers at Los Alamos National Laboratory are also experimenting with ultra-low field magnetic resonance imaging to create images of the brain that can be used in military hospitals or remote villages in developing countries. To get the images at such low fields, they are using sensitive detectors called Superconducting Quantum Interference Devices (SQUIDs). Los Alamos National Laboratory specializes in nuclear security and has unique capabilities in imaging that are typically used for research in detection – such as detecting cracks and voids in weapons or the technology that can detect bombs in airports. The lab figured out that the same technology that can be used in airports has health care applications. But, interference challenges need to be refined before the portable MRI can be ready for mainstream use. Common items like cars and power lines create magnetic fields, and the team is working on a simple, light way to shield the device from outside magnetic fields.

Analysis: We have seen the miniaturization of technology in our own lives – from the giant computers used by very few in the 1940s and 1950s, that over the years led to the tablets and smartphones many of us depend on every day. New materials and innovations will likely lead to additional miniaturization of medical equipment in the hospital and home. Innovators in this field are also creating microneedles to improve eye surgery and drug delivery. Research into new medical-grade biocompatible materials are leading to wearables and implantables being developed from materials that are sweat-proof, resistant to movement, and are comfortable and safe. Biosensors included in rapidly shrinking wearables and medical devices allow consumers and clinicians to monitor and track more aspects of patients’ health, enabling earlier intervention—and even prevention—in a way that is much less intrusive to patients’ lives.

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