COLUMN-Medicare Advantage defies expectations by growing
NEW YORK, July 18 (Reuters) - If we used tennis scoring to track the progress of healthcare reform, this would be the moment to declare: advantage Advantage.
Obamacare opponents have been warning for several years now that Medicare Advantage, the private plan option that seniors can pick instead of traditional fee-for-service Medicare, would fail because of the healthcare law's impact on the program. The prediction was that the gradual elimination of extra federal reimbursements to Medicare Advantage would kill it.
But the opposite is happening.
Advantage plans, which combine Part A (hospitalization) Part B (outpatient services) and usually Part D (prescription drugs), are on a big-time roll. Enrollment has jumped an impressive 10 percent in each of the past three years, according to data compiled by the Kaiser Family Foundation (KFF), a non-profit healthcare research and policy organization. About 28 percent of all Medicare enrollees this year are in an Advantage plan.
"The growth is remarkable, and no one anticipated it," says Dan Mendelson, chief executive officer of Avalere Health, a healthcare consulting and research firm. "Advantage plans will be over 40 percent of the market soon."
The growth of Advantage likely will shift into an even higher gear during the next few years following the launch of the state public insurance exchanges under the Affordable Care Act (ACA). Most are managed care plans - 65 percent are health maintenance organizations (HMOs) and 22 percent are preferred provider organizations (PPOs), according to KFF. Many of the top players in Advantage also will be marketing insurance in the exchanges and they will have ample opportunity to cross-market Advantage plans to older users of exchange products as they transition to Medicare.
Savings on premium costs are a big driver of Advantage plan growth. Enrollees pay their regular Part B premium, which is$104.90 this year. The Advantage plans also can charge a supplemental premium, but many don't. This year, 55 percent of enrollees are in plans with no extra premium, and two-thirds of HMO Advantage plan members pay nothing extra, KFF says.
That means Advantage participants do not pay standalone premiums for prescription drug coverage, averaging $30 per month this year. They also are not paying for Medigap supplemental plans, which are popular in traditional Medicare and cover deductibles and coinsurance for long hospital stays and outpatient services, and help lower out-of-pocket costs.
Prices vary, but it's not uncommon to find monthly Medigap premiums around $200. (Medigap is not sold with Advantage plans.)
NO FEAR OF MANAGED CARE
Advantage plans also are gaining because the baby boomers coming into the Medicare system are accustomed to managed care.
"The next generation of Medicare enrollees were in the workplace during the managed care revolution of the 1990s, so they're more used to care networks and rules," says Joe Baker, president of the Center for Medicare Rights, a non-profit consumer service organization.
Mendelson takes that one step further, arguing that seniors are losing patience with traditional fee-for-service healthcare.
"Our survey work shows a growing level of frustration with the fee-for-service approach," he said. "Patients see a system that lacks coordination of care and quality metrics. They sense that doctors have less and less time to take care of patients."
Under Obamacare, fee-for-service providers are encouraged to band together into Accountable Care Organizations (ACOs), which aim to coordinate care. But ACOs still are in the experimental stage.
So the rapid growth of Advantage leaves an open question: Is a private managed care plan good for everyone on Medicare?
The savings on premiums are an important plus for healthy seniors, since their overall usage of care will be low and out-of-pocket costs will be minimal. Baker urges less-healthy seniors to proceed with caution.
"If you're a relatively healthy 65-year-old who goes to the doctor once a year, you will save some money on premiums," Baker says. "But costs can escalate if you get sick."
That's because Advantage plan members have exposure to potentially high out-of-pocket costs if they use a lot of healthcare. Federal regulation caps their annual out-of-pocket spending at $6,700, although most plans cap cost-sharing at much lower levels. The average out-of-pocket cap in Advantage plans this year is $4,317 and half of enrollees are in plans capped at or below $3,900, KFF reports.
Traditional Medicare, by contrast, has no cap, but if you have Medigap, many out-of-pocket charges such as copays are covered.
Choosing between Advantage and traditional Medicare boils down to a bet on your health prospects when you first enroll in the program, usually at age 65. You also can switch between fee-for-service and Advantage during Medicare's annual fall enrollment period.
If you are inclined to take traditional Medicare, there is an advantage to picking it when you first enroll because the Medigap policy won't be able to exclude you for any pre-existing condition or charge a higher premium due to any past health problems. Depending on your state, you might have trouble getting a Medigap policy, or have to pay more, if you try to get a policy past that point.
And what about those reimbursement cuts? Before the ACA, Medicare Advantage plans were reimbursed by the federal government at 114 percent of regular Medicare rates, a payment scheme that was put in place to stimulate the Advantage market. The ACA reduces them by $116 billion over a period of years, ultimately equalizing reimbursements with traditional Medicare.
The jury's still out on whether the cuts will put a dent in Advantage's growth, but Mendelson sees it as a manageable challenge.
"If you're running a Medicare Advantage plan, you'll be pushing healthcare providers to get more efficient and coordinate care," he said. "You can be well-positioned, even with lower reimbursement rates."
(Follow us zReutersMoney or at http://www.reuters.com/finance/personal-finance. Editing by Beth Pinsker, Lauren young and Andre Grenon)