De­spite cuts, Medi­care Ad­van­tage en­roll­ment, in­sur­ers’ stocks, still surg­ing

Modern Healthcare - - NEWS - By Paul Demko

Last Oc­to­ber, Em­blemHealth’s Medi­care Ad­van­tage HMO be­came the first Ad­van­tage plan in New York City to achieve a cov­eted four-star rat­ing from the CMS. That was the re­sult of four years of work to im­prove the HMO’s qual­ity mea­sures, said John Kennedy, the for-profit in­surer’s vice pres­i­dent for di­rect-to-con­sumer sales. Now, if Em­blemHealth of­fi­cials no­tice that an en­rollee with di­a­betes is over­due for blood tests, they’ll reach out to the mem­ber and doc­tor to en­cour­age them to sched­ule an ap­point­ment. “I think (mem­bers) sense that the health plan is re­ally con­cerned about their qual­ity of care,” Kennedy said.

The four-star rat­ing (on a scale of 1–5) al­lows Em­blemHealth to re­ceive bonus pay­ments from the CMS at a time of height­ened rate pres­sure on Medi­care Ad­van­tage plans. The bonuses typ­i­cally amount to an in­crease of a cou­ple of per­cent­age points—$281 per en­rollee in 2012, ac­cord­ing to the Kaiser Fam­ily Foun­da­tion. That amount can make the dif­fer­ence be­tween profit and loss in a nar­row-mar­gin busi­ness.

De­spite wide­spread projections that Medi­care’s re­duced pay­ments to Ad­van­tage plans man­dated by the Pa­tient Pro­tec­tion and Af­ford­able Care Act would lead to en­roll­ment re­duc­tions, pri­vate Medi­care plans are boom­ing. Cur­rently, there are nearly 15.9 mil­lion se­niors en­rolled in Ad­van­tage plans, com­pared with 11.4 mil­lion in 2010, an in­crease of al­most 40%. Nearly one-third of all Medi­care ben­e­fi­cia­ries now are en­rolled in Ad­van­tage plans, with roughly twothirds of them opt­ing for HMO prod­ucts.

The Con­gres­sional Budget Of­fice projects Ad­van­tage en­roll­ment will hit 21 mil­lion by 2023.

The grow­ing sig­nif­i­cance of Ad­van­tage rev­enues helps ex­plain why the in­sur­ance in­dus­try has fought so fiercely against pro­posed cuts to the pro­gram. In Fe­bru­ary, the CMS re­leased pro­posed pay­ment poli­cies for 2015, with most an­a­lysts pro­ject­ing the up­dated poli­cies would lead to a 3% to 5% cut to health plans if en­acted. The fi­nal 2015 pay­ment poli­cies will be re­leased on April 7.

De­spite the threat of cuts, in­sur­ers see Medi­care Ad­van­tage as a very de­sir­able busi­ness, given that the aver­age Medi­care pay­ment per plan ben­e­fi­ciary is roughly $10,000 a year, much higher than pre­mi­ums in the un­der-65 mar­ket. Last year, the federal govern­ment spent $146 bil­lion on the pro­gram, ac­cord­ing to the Medi­care Pay­ment Ad­vi­sory Com­mis­sion. Per-ben­e­fi­ciary spend­ing on Ad­van­tage en­rollees re­mains 6% higher than in the tra­di­tional Medi­care fee-for-ser­vice pro­gram.

The mar­ket is mostly dom­i­nated by large, pub­licly traded com­pa­nies, though not-for­profit Kaiser Per­ma­nente is one of the lead­ers. Hu­mana and Unit­edHealth Group had roughly 6 mil­lion Ad­van­tage cus­tomers com­bined at the close of open en­roll­ment for 2014. More than 80% of Medi­care ben­e­fi­cia­ries around the coun­try had ac­cess to a Hu­mana Medi­care plan, while nearly 70% had ac­cess to a Unit­edHealth plan, ac­cord­ing to the Kaiser Fam­ily Foun­da­tion. Aetna, Cigna and Wel­lPoint com­bined have more than 2 mil­lion additional Ad­van­tage en­rollees. To­gether, those five plans con­trol more than half the Ad­van­tage mar­ket, while Kaiser Per­ma­nente has roughly 1.2 mil­lion Medi­care en­rollees. No other plan has more than 400,000 cus­tomers.

Many of these key play­ers have boosted their mar­ket share in re­cent years through ac­qui­si­tions. Hu­mana Pres­i­dent and

CEO Bruce Broussard ex­pected the trend to­ward con­sol­i­da­tion to con­tinue. “The bar­ri­ers to en­try are go­ing up,” Broussard dur­ing an ap­pear­ance last month at the Bar­clays Global Health­care Con­fer­ence. “I think the smaller plans will con­tinue to be at a dis­ad­van­tage over time.”

Hu­mana’s busi­ness is dom­i­nated by Medi­care Ad­van­tage. In 2013, the com­pany re­ported $27 bil­lion in pay­ments from the pro­gram, or two-thirds of its to­tal rev­enues. That was up slightly from 2012, when 63.5% of rev­enues came from the Ad­van­tage pro­gram.

Amer­ica’s Health In­sur­ance Plans has waged a vig­or­ous lob­by­ing and ad­ver­tis­ing cam­paign warn­ing that the ACA-driven cuts will force plans to re­duce ben­e­fits and hike out-of­pocket costs, in­clud­ing pre­mi­ums and co­pay­ments. That’s po­tent stuff in a con­gres­sional elec­tion year when se­niors are ex­pected to make up a dis­pro­por­tion­ate share of vot­ers.

“When you in­tro­duce pre­mi­ums to ben­e­fi­cia­ries who are used to zero dol­lar pre­mium prod­ucts, or in­crease pre­mi­ums in gen­eral, there are neg­a­tive im­pli­ca­tions. Many Medi­care ben­e­fi­cia­ries are on fixed in­comes, and any changes in pre­mi­ums im­pact them,” said Fran Soist­man, Aetna’s ex­ec­u­tive vice pres­i­dent of govern­ment ser­vices. “So many of these Medi­care ben­e­fi­cia­ries are on fixed in­comes.”

So far, though, there’s lit­tle ev­i­dence that pre­mi­ums have spiked as a re­sult of spend­ing re­duc­tions in­cluded in the ACA. The aver­age monthly Ad­van­tage pre­mium for 2014 is $49, ac­cord­ing to the Kaiser Fam­ily Foun­da­tion, down from $51 in 2013. But caps on out-of-pocket costs have in­creased by more than 10% for 2014, to an aver­age of $4,797.

To keep costs down, Ad­van­tage plans have moved to nar­row their provider net­works. Unit­edHealth sparked an up­roar among se­niors and physi­cians last fall when it sharply pared back its net­works, which caused some cus­tomers to lose ac­cess to their doc­tors. That led to law­suits in Con­necti­cut and New York chal­leng­ing the in­surer’s author­ity to ter­mi­nate doc­tors with­out suf­fi­cient no­tice.

The pay­ment re­duc­tions in­cluded in the ACA were de­signed to bring the per-ben­e­fi­ciary cost of the pro­gram in line with tra­di­tional Medi­care and to help fund pre­mium sub­si­dies for con­sumers in the Oba­macare in­sur­ance ex­changes. In 2009, Medi­care spent about 14% more on Ad­van­tage en­rollees, ac­cord­ing to Med­PAC. It’s pro­jected that Ad­van­tage mem­bers still will cost 2% more in 2017, ac­cord­ing to the Com­mon­wealth Fund.

At the time of the ACA’s pas­sage, the CBO pro­jected pay­ment re­duc­tions would re­sult in 7 mil­lion fewer se­niors en­rolling in Ad­van­tage plans by 2019. But the op­po­site hap­pened. De­mo­graph­ics ex­plain part of the big en­roll­ment in­crease. Roughly 10,000 baby boomers are be­com­ing el­i­gi­ble for Medi­care ev­ery day, and that gen­er­a­tion is ac­cus­tomed to man­aged-care health plans with limited provider net­works. Roughly half of all new Medi­care ben­e­fi­cia­ries are opt­ing for Ad­van­tage plans.

Hu­mana’s 2014 en­roll­ment growth was sig­nif­i­cantly greater than an­tic­i­pated. The Louisville, Ky.-based com­pany saw its Ad­van­tage mem­ber­ship in­crease by roughly 15%

Some an­a­lysts warn that growth isn’t nec­es­sar­ily a sign of fi­nan­cial strength.

over 2013, to nearly 2.8 mil­lion, ac­cord­ing to re­search and con­sult­ing firm Avalere Health. That was more than three times the growth rate for Unit­edHealth, and it rep­re­sented roughly a quar­ter of all new pri­vate Medi­care en­rollees. Hu­mana de­clined to com­ment for this ar­ti­cle.

But some an­a­lysts warn that growth isn’t nec­es­sar­ily a sign of fi­nan­cial strength. In Fe­bru­ary, Citi Re­search down­graded Hu­mana’s stock to sell sta­tus. Its an­a­lysts cau­tioned that Hu­mana seemed to have picked up many higher-risk, costlier ben­e­fi­cia­ries in the Florida mar­ket who had been shed by Unit­edHealth in its ef­forts to con­trol costs by shrink­ing its net­works. “Grow­ing much faster than the rest of the in­dus­try rarely ends well in man­aged care,” the an­a­lysts said.

Unit­edHealth’s de­ci­sion to tighten its net­works is a likely rea­son for Hu­mana’s en­roll­ment boom, said Jay Wolf­son, a pro­fes­sor at the Univer­sity of South Florida. He agreed that Hu­mana likely picked up many Unit­edHealth refugees in Florida. “Many (se­niors) de­cided that they wanted to change, ei­ther to re­main with their physi­cian or be­cause they were an­gry with Unit­edHealth and wanted out,” Wolf­son said.

Aetna’s busi­ness dou­bles

Aetna, Cigna and Wel­lPoint’s re­spec­tive ac­qui­si­tions have also strength­ened their pres­ence in the Ad­van­tage mar­ket. Aetna’s Ad­van­tage busi­ness has more than dou­bled since its $5.7 bil­lion ac­qui­si­tion of Coven­try Health Care was com­pleted last year. The Hartford, Conn.-based com­pany now has more than 1 mil­lion Ad­van­tage en­rollees.

Cigna com­pleted its ac­qui­si­tion of HealthSpring for $3.8 bil­lion in 2012, adding 340,000 Ad­van­tage en­rollees. That has led to a ten­fold in­crease in the Bloom­field Conn.-based com­pany’s Medi­care busi­ness in the past three years. Wel­lPoint’s 2011 ac­qui­si­tion of CareMore Health Group bol­stered its Ad­van­tage busi­ness in Cal­i­for­nia, Ari­zona and Ne­vada, adding more than 50,000 cus­tomers.

In the next tier of com­peti­tors, Wel­lCare Health Plans boosted en­roll­ment by 35.4% in 2014. In Jan­uary, the Tampa, Fla.-based com­pany com­pleted ac­qui­si­tion of Wind­sor Health Group, which added Ad­van­tage cus­tomers in four states. Last Oc­to­ber, Wel­lCare an­nounced it was ex­pand­ing plan of­fer­ings to Medi­care ben­e­fi­cia­ries in Ari­zona, Cal­i­for­nia and Ken­tucky.

Some hospi­tal sys­tems also are eye­ing the Medi­care Ad­van­tage mar­ket. New York City’s Mount Si­nai Hospi­tal re­cently an­nounced that it will launch its own Ad­van­tage plan next year, and Wolf­son said other providers are weigh­ing sim­i­lar moves.

But crit­ics say that few hospi­tal sys­tems have the in­sur­ance ex­per­tise to suc­ceed in run­ning their own Ad­van­tage plans, and that they haven’t done well with such en­deav­ors in the past.

To boost pay­ments, health plans have worked on im­prov­ing their star rat­ings. Start­ing in 2015, only plans that re­ceive at least four stars will be el­i­gi­ble for CMS bonuses. This year, 38% of Ad­van­tage plans re­ceived at least four stars, up from 28% in 2013, ac­cord­ing to an anal­y­sis by HealthPocket, an on­line in­sur­ance bro­ker. More than a third of Hu­mana’s Ad­van­tage plans re­ceived at least four stars in 2014, com­pared with 20% for Unit­edHealth.

Health plans are warn­ing of dire con­se­quences if the CMS im­ple­ments its pro­posed cuts when it an­nounces its fi­nal 2015 rates on April 7. But the cred­i­bil­ity of AHIP on the is­sue has been weak­ened by its pre­vi­ous in­ac­cu­rate pre­dic­tions about how rate re­duc­tions would un­der­mine the Ad­van­tage pro­gram.

Fur­ther un­der­cut­ting those warn­ings, in­vestors have re­acted bullishly since the CMS an­nounced its pro­posed pay­ment pol­icy Feb. 21. The five pub­licly traded com­pa­nies with the largest num­ber of Ad­van­tage en­rollees have seen their stock prices rise by at least 6% since then.

But Sh­eryl Skol­nick, a man­ag­ing di­rec­tor with CRT Cap­i­tal Group who tracks in­sur­ance stocks, said she doesn’t think the up­beat in­vestor re­ac­tion nec­es­sar­ily shows that in­sur­ers are cry­ing wolf. “It’s al­most as if Wall Street has will­fully dis­re­garded all of the warn­ings, which is never a smart thing to do,” she said.

In­sur­ers want healthy se­niors en­rolling in their Ad­van­tage plans. (Photo taken at Leon Med­i­cal Cen­ters’ Healthy Liv­ing Cen­ter in Mi­ami.)

Steady growth in Medi­care Ad­van­tage

Top Medi­care Ad­van­tage in­sur­ers, 2013-14

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