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.
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.