Monday, July 14, 2014

The Continuing Rise of Medicare Advantage

Last week, the economist Austin Frakt said in the NY Times that “Today, 30 percent of Medicare beneficiaries are enrolled in a Medicare Advantage plan, more than at any time in history. In some states, like Hawaii and Minnesota, about half of Medicare beneficiaries are in such plans. This is despite the fact that government payments to plans were cut by the Affordable Care Act. They’re down eight percentage points from their peak in 2009, as measured relative to the cost of traditional Medicare coverage.”

None of this is news.  Back in January the Aetna CEO said the same thing and we commented on it:

CMS pays private insurers to take over the risk for each senior who enrolls for Medicare Advantage.  At one time, the average CMS payment was 114% of the cost for traditional Medicare enrollees. These higher payments were partly because of risk-adjusters in the CMS payment formula – and partly because Medicare Advantage provides better coverage than traditional Medicare.  However – and this is important information – Bertolini said the average government payment to Medicare Advantage insurers is now down to 106%, and is “headed to zero.”  

In other words, private Medicare Advantage insurers believe they have figured out how to provide better benefits and better service than traditional Medicare, for the SAME cost. That's big.

It's big because it would bring good news all around: CMS will shed even more traditional Medicare risk – and cost – thus reducing its financial strain; private insurers will pick up even more Medicare Advantage enrollment on a profitable basis even when paid the same as the cost of traditional Medicare; the taxpayers will benefit if there is reduced need for higher taxes to support traditional Medicare; and seniors who prefer Medicare Advantage over traditional Medicare will still have that highly popular option available to them.
Frakt continues, “One answer is that baby boomers, who are just entering Medicare-eligibility age, are more accustomed to the types of insurance Medicare Advantage offers, such as H.M.O.s
Bertolini also said that back in January.   Today's employees are increasingly willing to sign up for Medicare Advantage when they reach age 65, because they have had years in which to become familiar with managed care.  I think that means enrollment growth in Medicare Advantage is likely to accelerate over the next few years; an accelerating trend would of course be compounded as more “boomers” retire.
Frakt continues “Another answer is that prior generations of retirees may have been more likely to have had coverage from former employers that wrap around traditional Medicare, filling in its gaps. This coverage has become less common as employer-sponsored retirement benefits have eroded generally.”

Frakt is correct about the withering of employer-based retiree coverage but I disagree that is a reason more of us are specifically choosing Medicare Advantage. 

I'm enrolled in a Medicare Advantage policy.  I did not enroll because my former employer ended retiree coverage; I enrolled in it because Medicare Advantage is a better deal for me then traditional Medicare.  Even today, without employer-sponsored coverage, retirees can purchase government-approved Medicare Supplement policies that fill in the traditional Medicare "gaps."  Yet retirees increasingly prefer Medicare Advantage over traditional Medicare with Supplements.  Frakt does not explain this preference. 

I think the answer is: because Medicare Advantage offers much better coverage; is a simpler arrangement; is easier to use; is thus a better value; and thus a smarter buy.

Besides, Frakt’s use of the term “gaps” glosses over the size and seriousness of the very real inadequacies in original Medicare.  Those inadequacies have been called "gaps" for a long time; Frakt is not the first to use the term, nor will he be the last.  But calling these inadequacies "gaps" is akin to calling the Obamacare Exchange systems debacle "glitches." The term makes Medicare's inadequacies sound small, even trivial. Truth is, the inadequacies are serious, not small.

Calling them "gaps" amounts to deception by vocabulary.  

So it seems to me if the decline of employer-sponsored supplemental plans is any factor at all in the growth of Medicare Advantage, it's only because such decline has for the first time exposed the serious inadequacies in original Medicare to a significant number of retirees.   Those inadequacies are the issue.  And we retirees are noticing.

FWIW. there’s an additional factor:  more and more people – not just retirees - are also noticing the federales have done little or nothing to improve the traditional Medicare product.  Medicare has not chosen to respond to its Medicare Advantage competition by improving its own product. Instead, Medicare chose to respond to its competition by using its power to kill its competitor, rather than compete with it.  That illustrates pretty well how governments tend to "compete" and we all need to keep this in mind when the "public option" idea again surfaces.
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