Why Oscar Health wants a piece of the Medicare Advantage pie

EVERYBODY WANTS A SLICE of the fast-growing, money-making Medicare Advantage sector. The latest taker is Oscar Health, which has until now focused on snapping up individual commercial members that other health plans left behind when fleeing the Affordable Care Act exchanges.

Now the New York insurance startup, backed by a $375 million investment from Google’s parent company, Alphabet, hopes to stake a claim in the Advantage business where there is no shortage of experienced competitors.

It’s not surprising that Oscar wants to give Medicare Advantage a try. Many health insurers are investing in the privatized version of traditional Medicare as well as the provider organizations that can improve the quality and lower the cost of seniors’ care as the pool of eligible beneficiaries grows.

“There’s a lot of opportunity there, but the challenge is going to be that Medicare Advantage markets tend to be quite concentrated in terms of the players already there,” said Eric Berger, a partner at Bain & Co. “At a nationwide level, the top seven Medicare Advantage players constitute about 75% of the market.”

UnitedHealthcare, Humana and Blue Cross and Blue Shield companies serve more than half of all Advantage members, according to the Kaiser Family Foundation.

Medicare Advantage enrollment has grown steadily over the past decade and shows no signs of slowing. About 21.4 million seniors are currently enrolled in Advantage plans, up 7.8% over last year, according to the latest data from the CMS. That represents about onethird of all Medicare beneficiaries.

Driving that growth is the aging baby boomer generation. More importantly, seniors are choosing Medicare Advantage more often than traditional Medicare, in part because they are used to managed-care plans through their employers. Seniors also often get more benefits, including dental care, eyeglasses and gym memberships, when they choose Medicare Advantage over traditional Medicare.

The Advantage market also benefits from the Trump administration’s support. After years of rate cuts imposed by the Affordable Care Act, Medicare Advantage rates are increasing again. For 2019, plans will receive a 3.4% pay increase, up from 2.95% in 2018. Some health plans, including Humana and UnitedHealthcare, have already indicated they will sweeten their benefit packages with the extra funding, which will help attract more enrollees.

On top of the pay raise, the Trump administration has granted Advantage plans new flexibility to provide more supplemental benefits in 2019, such as transportation and in-home care. And early this month, the CMS also said it would allow Advantage plans to require members to try low-cost generic drugs before turning to more expensive medications. The ability to impose step therapy on Part B drugs gives plans more control of costs.

Medicare Advantage is “also an environment where insurers can count on getting the payments even if there is a downturn in the economy,” as opposed to, say, the private insurance market where individuals may not pay up, said Gretchen Jacobson, an associate director at the Kaiser Family Foundation.

And while other markets, including Medicaid and the exchanges, were targets for reform when the new administration took office, Congress steered clear of proposing major changes to Medicare Advantage.

“That’s a signal that as an insurance plan, (Medicare Advantage) is less volatile and less prone to policy changes,” S&P Global analyst Deep Banerjee said.

Longtime Advantage incumbents UnitedHealth and Humana continue to invest heavily in the business. Humana recently acquired a stake in home health provider Kindred Healthcare and hospice operator Curo Health Services— two businesses that will help serve its senior population at a lower cost.

Humana grew its Medicare Advantage enrollment to 3.5 million as of June 30, an increase of 7.5% over the same time in 2017. UnitedHealthcare’s Advantage membership grew 10.4% over the same period to 4.8 million.

Even those health insurers that traditionally focused on other markets are

throwing their weight behind the seniors business. Centene Corp., which serves about 344,000 Advantage members, last month announced a partnership with the nation’s largest Catholic system, Ascension, to launch a joint venture Medicare Advantage plan in 2020.

Centene CEO Michael Neidorff in June told investors that Medicare Advantage is a renewed focus area for the insurer, Leerink Partners analyst Ana Gupte said in research note. Centene has historically served the Medicaid managed-care market and the Obamacare exchanges, but entered nine new Advantage markets in 2018 and expects to serve 420,000 members by year-end.

Anthem also recently bought two Florida-based Advantage plans, boosting its membership to 1.7 million at the midyear point, up 17.1% year over year. Company officials said they are gearing up to grow group Advantage and dual-eligible membership in 2019.

Aetna is neck and neck with Anthem, having grown its Medicare membership by 19.3% to 1.7 million as of June 30, de- spite being tied up in its pending merger with CVS Health.

For many insurers, premium revenue collected from Advantage members is driving the bottom line this year. Margins for Medicare Advantage plans average between 4% and 5%, Banerjee said.

Margins are higher in the group employer business, but that segment is not growing enrollment like Advantage plans are. Medicaid managed-care margins tend to be between 2% to 3%, Banerjee said.

Oscar, which is known for emphasizing the use of technology, telemedicine and concierge teams to augment members’ care, this year served about 240,000 individual members in six states and partners to create narrow networks with health systems like Cleveland Clinic in Ohio; Tenet Healthcare Corp. in Dallas; and Mount Sinai Health System and Montefiore Health System, both in New York. Oscar also offers small-business plans in certain areas in four states. It wants to move into Medicare Advantage in 2020.

In addition to handling all the competition, new entrants in the space also have to learn how to code their members’ health conditions accurately. The CMS pays Advantage plans monthly amounts for every member covered based in part on how sick a patient is. Plans that have served seniors longer have more experience coding their members to reap higher payments.

“Companies often don’t have expertise to do that really well,” Banerjee said. “It’s not easy and it might take a couple of years to get used to that and get the right code for all members.”

Some incumbent Medicare Advantage players have been accused of inflating patients’ risk scores to collect more funds from the CMS. The U.S. Justice Department has investigated the medical upcoding practices of several large health insurers.

Banerjee expects that in 10 years, about half of eligible individuals will choose Medicare Advantage over traditional Medicare. “It’s a growing market, so there is a space for new entrants.”●