Private alternatives or supplements to Medicare have grown in popularity, but with the program losing money, more regulation may be on its way.
What is Medicare Advantage?
First things first. Medicare Advantage, also known as “Part C,” is an entirely private alternative to Original Medicare. Because it uses private networks, administrators can negotiate prices, and many procedures require pre-authorization, the program can provide more preventative care services for members than Original Medicare can.
How is Advantage paid for?
Medicare Advantage is largely paid for out of the Centers for Medicare and Medicaid Services (CMS) budget. Each year, Medicare sets a benchmark for what they estimate the per-person spend to average, and Advantage plans “bid” a price that they’ll pay for each member’s care. If their bid comes in under the Medicare benchmark, then the Advantage plan will be paid the per-person bid, plus a rebate, for each person enrolled in their plan.
Many Advantage plans cost participants the same amount as what they would pay for a Part B premium, which often comes straight out of their Social Security check, and so are often referred to as $0 premium plans (although they aren’t $0 – that Part B premium is real).
If Part B, Part C, etc. sounds like alphabet soup to you, you might want to pause for a minute and go read our Medicare 101 piece before diving in on the nuances of Medicare Advantage.
Medicare Advantage limitations lead to increased churn
Advantage first became available in the aughts of the century, and consumers have welcomed the innovation and its promise of expanded coverage. In fact, Advantage adoption has doubled in the last decade, with the average Medicare recipient having access to 33 Advantage plans at their fingertips.
In 2020, 42 percent of new enrollees to Medicare joined a Medicare Advantage plan. However, while penetration is high in many urban areas, with some counties boasting that more than 50 percent of Medicare recipients are Advantage enrollees, rural adoption is weak.
Rural health care networks were already destabilized before the COVID-19 pandemic, as small hospitals continue to shut down or merge and still are unable to keep up with the profitability of large city-based medical conglomerates. When it comes to Medicare Advantage’s possible adoption outside of urban and suburban areas, the lack of local health care networks and cost-reducing options in rural communities is a serious factor.
Because health care networks are so city-centric, it’s likely rural residents will continue to avoid or disenroll from Medicare Advantage unless remote care access and rural network coordination become a higher priority. Overall, that equates to higher plan turnover for Advantage plans, making acquiring new members both more expensive and less profitable over time for carriers and agencies.
Medicare Advantage has yet to deliver on financial efficiency
The aim of Advantage plans is to drive efficiency for Medicare. By using traditional health insurance networks and other limitations, they can free up resources to provide more preventative coverage, leading to healthier (and less expensive) long-term outcomes for members. At least that’s the theory.
And, to some degree, data points show Advantage members tend to get more preventative care. However, with a national Medicare hospital fund on the brink of insolvency, the potential improved health outcomes and their lower bills have yet to be realized.
In fact, according to the Kaiser Family Foundation, Medicare Advantage actually costs the U.S. more per person, even without accounting for hospice care. Advantage plans spend less on each recipient compared to Original Medicare; Original recipients cost $11,523 on average in 2019, versus $10,848 for Advantage members. Yet, since the private-public funding structure of Medicare incentivizes “rebates” for cost savings, once you add in the $996 average rebate payment from CMS to private companies, Advantage is more costly for CMS.
Unfortunately, private alternatives to Medicare also have received a lot of criticism this year after a federal report revealed 13 percent of the procedures and services that Advantage plans denied their members in the pre-qualification stage (a stage that doesn’t exist with Original Medicare, remember) would have been covered under Original Medicare. Essentially, the report suggested that many of the cost savings Advantage providers trumpet are won by inappropriately denying care to plan members.
The report directed Medicare Advantage organizations “to take additional steps to identify and address vulnerabilities that can lead to manual review errors and system errors.” This is one area that seems ripe for technological disruption, as automated claims and pre-qualification processes for what we might call “clean claims” could deliver better care for lower costs.
Advantage’s disadvantages lead to higher plan disenrollment, churn
If you’re asking questions like “what does this mean?”, then we’re getting to it just about now. While Medicare Supplement policies and Advantage plans historically have lower churn rates than the traditional insurance market, Advantage plans have higher turnover than Supplement plans.
With Supplement plans, consumers can enroll when they turn 65, but outside of the initial enrollment period, Supplement plans can require enrollees to submit to health rating. Advantage, however, has an annual enrollment period where members can switch plans, no health rating required. This has led to higher churn rates, about 10 percent of Advantage participants each year, according to Kaiser data.
Also of note, about 2 percent of Advantage members consistently switch to Original Medicare each year. One Government Accountability Office revelation in 2021 was that Advantage enrollees in their last year of life – those most likely to need intense medical care – were more than twice as likely as other enrollees to disenroll and rejoin Original, suggesting that the difficulty of getting coverage is a major barrier to those who need a high level of care.
CMS keeps records of churn rates for various plans, and some of the revelations from their long-term data reveal that administrative difficulties are a serious barrier to care.
When asked why Advantage participants defected from their plans:
- 18% said it was difficult to get the plan to provide and pay for needed care
- 25% said their plan didn’t cover appropriate doctors and hospitals
- 23% said financial reasons
- 10% said prescriptions were the reason
- 13% said getting information from the plan was too difficult
How can Medicare Advantage plans adapt for the future?
The future of the Medicare program was the subject of the June 2022 Medicarians conference, and you can absolutely check out our coverage to read about the innovative approaches presenters pitched.
The idea that Advantage plans can make a difference in cost-effectiveness by providing more preventative care and comprehensive services is a well-intentioned one, but one that requires little churn and a long-term commitment to reach provability. And the Medicare hospital fund is projecting bankruptcy in less than a decade.
Matters of churn, per the CMS data, are less about plan quality and more about administration and customer service issues, things that may be transformed through a more thoughtful pairing of digital administration and human interface.
But the real questions likely lay at the feet of Congress. Things like recalculating the CMS reimbursement rate for Medicare or increasing Medicare payroll taxes are likely to make it to federal legislation in the future, as are marketing restrictions such as CMS’s recording retention rule that aims to keep Medicare call centers and producers accountable for the way they present plans to the public. If CMS continues to find data that indicates a large percentage of inappropriately denied coverage, then increased regulation and scrutiny will likely lie on the horizon for Medicare Advantage and Supplemental plans alike.
With data indicating generational shifts that will see a departure of the more experienced producers in the Medicare space and either an influx of new, inexperienced agents or a vacuum of agents altogether, both the digital and human sides of the industry will need to adapt quickly.
As Medicarians speaker Niji Sabharwal (yes, THAT Niji Sabharwal) noted, “Producers will need to be great people enabled by great tools to deliver amazing customer service,” he said. “[Medicare carriers and distributors] will need to maximize the time producers can spend with consumers.”
For carriers and agencies interested in streamlining operations and making themselves easier to work with for producers and, ultimately, plan members, see how AgentSync can help.