Medicare Advantage Premiums Down, Enrollment Way Up in 2012
We've long said on these pages that all the predictions of the demise of Medicare Advantage following passage of the ACA and its steep cuts to the program were premature. Finally, confirmation from CMS: MA premiums will fall another 4% in 2012, and enrollment will grow by a brisk 10%.
The news was delivered Friday by Jonathan Blum, deputy administrator for the Centers for Medicare and Medicaid Services. Blum said health plans are also lowering co-payments and deductibles. He attributed the premium drop to the agency's strong negotiations with plans as well as the plans' continuing desire to serve the market.
Some color commentary on Blum's announcement:
- Government programs (Medicare and Medicaid in particular) are the only segments of the insured that are growing. MA, for instance, will grow over 7% this year, topping 12.5 million beneficiaries. Part D is approaching 20 million enrollees;
- Publicly-traded companies like MA leaders Humana and United are now dependent on Medicare, deriving twice their earnings from the program than they did a decade ago (average publicly-traded health plan earnings from Medicare in 1999: 13%; today, 26%, with some like HealthSpring and Universal American over 70%. Bottom line: the big boys ain't going anywhere.);
- Over 40% of beneficiaries aging into Medicare have enrolled in MA plans the last two years, indicating the Boomers are a much more plan-friendly population than the World War II generation given managed care trends in the commercial market (HMOs, PPOs and POS plans represent more than 90% of all insured Americans).;
- Market-leading plans are adapting to the challenges of the ACA by offsetting its payment cuts with intense focus on Star Ratings quality bonuses and mastering the new state of the art in risk adjustment: the prospective home advanced evaluation. It's working, enabling plans to hold the line on benefits and premiums, and maintaining the attractiveness of these products vs. Medigap or traditional Medicare.
As long as the Congressional deficit Super-Committee doesn't fire another broadside at MA plan payment rates this fall, 2012 is shaping up to be a VERY good year.
My Talk at AHIP's Medicare Conference
I had the pleasure of addressing a standing-room-only crowd at the AHIP Medicare conference yesterday, sponsored by our friends at TMG Health, our 4th year together there. That speech always keeps me on my toes, especially this year -- a tough, smart audience that demands a tough, smart message on how to survive in the new Age of American Austerity. Here are the main points of what I said:
- Volatility and Accountability will define the sext several years in Medicare. Volatility: rates, the Medicaid dual eligible explosion, the Congressional "Super-Committee", industry consolidation, and the 2012 elections. Accountability: it's already here. Star Ratings bonuses, minimum MLR regulations, compliance, rate reviews, RADV audits, and Accountable Care Organizations.
- The State of the Union in Medicare Advantage (MA) and Part D is strong. All predictions of the demise of the program following health reform were wildly premature. MA will grow about 7% this year, and over 40% of beneficiaries aging into Medicare have chosen MA in the last two years. Local PPOs with the drug benefit integrated remain the product of the future in MA, as do Special Needs Plans given the tsunami of dual eligibles -- a $300 Billion market alone. We think MA will pass 15 million members by the end of 2015.
- Medicaid managed care is risky (BIG) business. We've already seen major awards this year in TX, LA and KY. CA is prepping the biggest RFP in US history: 150,000 duals in plans by end of 2012; all duals in plans by end of 2015: a $21 Billion opportunity. WA, FL, NH, NE, MI and HI are all preparing to move duals into plans.
- Volatility: many of us thought we "gave at the office" in health reform when the ACA whacked over $120 Billion from MA rates over a 7-year period. There's more austerity to come from the Congressional "Super-Committee" on the debt. Best case scenario? The Super-Committee fails, sequestration occurs, and we get hit with a 2% cut in 2013, 2014 and 2015, compounded. And what about the "doc fix"? If they don't fix the SGR and docs take a 29.5% cut in Medicare reimbursement in 2012, MA gets hit by about 7% in 2013, and the beneficiaries take it in the shorts. Bar the exits! Consolidation is intensifying in both payer-payer transactions, and payer-provider deals like United/Monarch (CA). And then there's the elections. My money as of today is that Obama gets re-elected by the narrowest of margins, Democrats lose the Senate, and we have another 4 years of economic doldrums with the HUGE exception of the ACA's implementation in 2014.
- Accountability: it's already here, a cornerstone of the ACA. It's embodied throughout, in Star Ratings bonuses, Accountable Care Organizations, with growing incentives for chronic care improvement, member satisfaction, and compliance. The cornerstone is transparent data reporting. Berwick's legacy will be his embedding the "Triple Aim" in the DNA of CMS. And CMS says it will terminate MA plans with less than 3 stars for 3 years running. A "good" star rating is not a hedge against the rate cut: it is an existential issue -- and a management revolution.
- What to Do?
- Aggressive revenue management in the near term. Master risk adjustment and audit-proof the function by embedding it where it belongs in Medical Management, move from claims extracts and chart reviews to Prospective in-home Evaluations, and be a Star Czar.
- Care coordination and chronic care management over the mid-term (3 years). It will take years to see results, but this is what it's all about in the mid-to-long-term. High-touch with the frequent flyers.
- Commit to a Culture of Compliance. The regulator is the purchaser, and you keep this account happy by following their rules. To. The. Letter.
- Revisit the service model and move from reactive to proactive. Health care is still a service business and Boomers are tough customers.
- Establish and Invest in Medical Homes, Accountable Care Organizations, and Exclusive Provider Organizations. In the end, it's all about the docs.
Questions? You can always reach our team at ghg@ghgadvisors.com.
PS Join me for another talk September 25-26 in Arlington at the Opal Events MA Strategic Business Symposium. Complimentary passes are still available today.
Medicaid Managed Care = Risky (BIG) Business
The Washington Post printed a recent expose on the coming explosion in Medicaid managed care opportunities, coupled with the tremendous challenges of caring for lower-income, vulnerable beneficiaries, especially dual eligibles.
Texas is moving some 425,000 beneficiaries into health plans this year. California began moving 380,000 older and disabled patients into private plans in June. Louisiana debuted managed-care contracts in July, affecting 875,000 enrollees. In October, New York plans to begin moving about 1.5 million patients into managed care. Florida is negotiating with the federal government to move most of its 3 million Medicaid enrollees into private plans. With the expansion of Medicaid managed care underway in at least 20 states and the surge of enrollment in 2014, thanks to the ACA, insurers expect $60 billion in new annual revenue.
We've long said that by 2015 we expect the entire TANF population (Temporary Assistance to Needy Families -- the "moms and kids") population to be in health plans, with millions of dual eligibles to follow suit. With a new office in the CMS Innovation Center dedicated to Federal/state collaboration on the duals, that segment will transition to managed care quickly as states desperately try to reduce the #1 item in every state budget: long-term care for the elderly and disabled. The "A/B/Ds" (Aged/Blind/Disabled) are the "final frontier" for health plans, and worth upwards of $300B annually -- but not without their perils in this climate of austerity.
Debt Crisis Hangover: 'Scary Erosion in Confidence'
Politico had a terrific story last week on the lingering hangover from the debt crisis. New data from The Conference Board suggest that the bitter debt ceiling debate in DC not only drove the US to the edge of default and cost the nation its triple-A credit rating, but crushed American confidence like few recent events and may tip the economy back into recession.
The Conference Board this week reported the biggest monthly decline in consumer confidence since the height of the financial crisis in 2008, its consumer confidence index falling from a reading of 59.2 to 44.5, the lowest in two years. Nearly every poll shows Americans lacking any confidence in the ability of political leaders to agree on significant steps to boost the economy or deal with other significant legislative matters.
GOP pollster Bill McInturff suggested that we are now "entering a new phase of the American political dialogue that has been irrevocably shifted in a way that will prove difficult to predict" and is likely to lead to "unstable and unpredictable political outcomes."
We're indeed sailing into some very scary uncharted partisan waters, to McInturff's point. We got the worst monthly jobs report in years this week, possibly indicating a "double-dip" recession. This will further weaken the President and his standing. Obama and Speaker Boehner can't even agree on the timing of a Presidential address to Congress on another stimulus package, much less what should be in it. Stimulus is usually comprised of some combination of infrastructure spending and tax cuts. Republicans in this Congress will never agree to the former, and Democrats will never agree to the latter. So I'm not expecting much progress on that front, and the economy will continue to stagger along.
Next up in intractable issues: the Congressional "supercommittee" that's supposed to figure our way out of the debt crisis. 7 of its 12 members must agree on recommendations to Congress, which must vote up or down. A simple majority in the House and Senate can send those recommendations to the President. But 7 out of 12 seems a stretch, as does even getting a simple majority in either this House or Senate. That means "sequestration": across the board cuts, including 2% to Medicare provider payments, likely on top of the 29% cut physicians will take in Medicare payments at year end due to the continued inability of Congress to fix the Sustainable Growth Rate methodology. And that's likely a better scenario than any specific cuts the Supercommittee may come up with. That all adds up to a horrible, no good, very bad day for our favorite program.
Listen to me, it sounds like my confidence is eroded, and I just got back from vacation. It is. I get it that Americans voted for divided government in the 2010 midterms, but I don't think they voted for dysfunctional government. Like McInturff said, we're sailing into some very big "unpredictable political outcomes." And the stakes for Medicare couldn't be higher.
I'll be speaking on this and related topics at AHIP's Medicare conference here in DC on September 13, and again September 26-27 at the Opal Events 3rd Annual Medicare Advantage Strategic Business Symposium. For more information, click here. Hope to see you there.
Consolidation in Medicare Advantage and Prospects for Regional/Local Plans
In the past 12 months three health insurers have each acquired a Medicare Advantage HMO: HealthSpring (Bravo), WellPoint (CareMore), and Humana (Arcadian). Large plans are finding that acquisitions make more sense than investments in organic growth in certain markets, and that enrollment will be driven by millions of plan-friendly Baby Boomers and employers seeking to transfer risk for retirees to Medicare. Investors that sat on the sidelines the last couple years during the financial crisis now need to invest, many large players are sitting on piles of cash, and there are many opportunities in the fragmented MA market. So consolidation will intensify -- what does that mean to regional or local MA plans?
First, there's plenty of room in MA's pantheon for regional and local plans. It doesn't take much enrollment to make the Top 25 in Medicare Advantage given revenues for MA members typically run 4-6x what commercial members pay -- take Independence Blue Cross in Philadelphia. They have about 85,000 members and they're among that hallowed group. 10,000-12,000 members is generally thought to be the "magic number" in MA, where a plan achieves actuarial stability with an enrolled pool big enough to weather the inevitable million-dollar babies at end-stage.
If you're above that number today, you can likely endure and thrive through the next several years of ACA transition and consolidation by following some specific best practices, especially around risk adjustment and Star Ratings management. If you're not there yet, this is going to be a very challenging couple of years ahead.
The best ways for local/regional plans to offset the rate cuts in ACA is on the revenue side. Risk adjustment and Star Ratings management best practices are the keys to survival for local and regional plans, and the methodologies of each actually favor these organizations. The new state of the art in risk adjustment is the advanced prospective evaluation -- a health risk assessment on steroids, conducted in the beneficiary's home by a trained physician (see the many posts by my colleagues Dr. Jack McCallum and RaeAnn Grossman on this subject). It's a complex process, arranging the scheduling, executing the visits, reporting the data to CMS -- but one managed more easily by local/regional plans with assets on the ground than large nationals.
Star Ratings quality bonuses from CMS actually favor local/regional plans as they're calculated at the contract ("H-number") level. Large national insurers typically have sprawling MA service areas: United in California, for example, has an MA contract for the entire state, requiring United to coordinate with literally dozens of physician groups to improve their Star Ratings. By contrast, tiny GEMCare Health Plan in Bakersfield, with a 5-county service area and only a handful of provider groups, is far better positioned to secure its Star bonus than United.
On the downside, minimum Medical Loss Ratio (MLR) regulations can be harder for local/regional plans to contend with. Beginning this year the ACA requires health plans to spend 80% to 85% of premium revenue on reimbursements for clinical services and activities that improve health care quality. Further, costs associated with conversion to ICD-10 coding, EMRs and e-prescribing are harder for smaller firms to absorb. But harder doesn't mean impossible, especially with effective planning and local leadership.
In the end, I think we're probably looking at one-third fewer contracts in MA by 2016 -- 671 today, down to about 400 by then, driven by acquisitions and a hard-nosed CMS pushing weak performers out of the program. That leaves plenty of room for local/regional plans -- if they can execute as well or better than the big dogs, especially on the revenue side of the ledger.
I'll be speaking on this and related topics at AHIP's Medicare conference here in DC on September 13, and again September 26-27 at the Opal Events 3rd Annual Medicare Advantage Strategic Business Symposium. For more information, click here. Hope to see you there.
United Acquisition of Monarch Healthcare (CA): Marx Meets Managed Care, Again
The Wall Street Journal reported this morning that United Healthcare is acquiring our longtime client, Monarch Healthcare in Irvine, CA. The transaction is further evidence that Marx (Karl, not Groucho) has met managed care: a payer controlling the means of production in an intensely competitive market.
There have been several other payer/provider deals in the last few months confirming the trend: WellPoint recently closed its acquisition of provider-owned Medicare Advantage plan CareMore; in June, Highmark bought West Penn Allegheny Health System; last December, Humana bought Concentra.
Expect to see many more of these kinds of deals, for clear strategic reasons: with greater emphasis on performance-based risk contracting arrangements in the future of healthcare financing, and an emerging focus on the patient's experience of care, in many markets it just makes sense for payers to own their supply chain -- and the day-to-day faces of the health plan with its members.
Medicare Advantage and PDP Plans Continue Robust Growth
The August enrollment numbers are in from CMS. 61,000 new MA members in August and 544,000 year-to-date. MA and PDP plans continued their robust growth on pace to exceed 2010's enrollment gains. Year to date it appears Boomer "age-ins" are continuing to choose MA at a higher rate than their forebears -- more than 40% for the last two years. With major MA/PDP sponsors like Aetna and HealthNet now relieved of marketing and sales sanctions from CMS, MA enrollment growth may exceed 7% for the year.
The story behind the numbers is clear: MA plans are adjusting just fine to the "new normal" post-ACA. Benefit designs have held relatively steady, and plans are making big investments in better revenue management, like mastering risk adjustment and the new Star Ratings bonuses, to offset the ACA's cuts. Many are revisiting their entire service model in response to Stars, recognizing that keeping members is the new selling.
At the pace we are on, MA will hit 15 million beneficiaries sometime in 2016. But that of course assumes Congress and the debt reduction "supercommittee":
- don't require another pound of flesh from the plans in whatever deal they hatch up in November
- get the Medicare physician pay fix enacted permanently. There's an enormous price tag of over $300 billion over 10 years for this, but without it, MA rates could be cut another 7% in 2013 and beyond. This is the single largest threat facing the program in the next several years.
Let's hope the noble experiments in creating insurance markets that are MA and Part D are allowed to continue when Congress reconvenes in September.
President Ryan?
Washington is abuzz this week that Paul Ryan is considering a run for President. Remember him? He reportedly is in Colorado with his family at this time discussing their position on turning their life into a 24/7 freakshow. Say what you will about the Roadmap--- a Ryan candidacy would put Medicare solvency and Government-sponsored health care in the middle of what has been shaping up to be a jobs election. Can you mount and sustain a campaign based on deficit reduction?
Stephen Hayes of the Weekly Standard gets credit for the scoop... Or rather, his editors get the credit for putting virtual ink to what has simply been cocktail party chatter since last Friday. Not that I go to those sorts of parties.
Further Evidence that Part D is Working
New data shows that seniors enrolled in Medicare Part D will pay about $30 in monthly premiums in 2012, 76 cents less than they do now and about 44 percent lower than originally projected in 2003. Indeed, since 2007, premium costs in Medicare's Part D program have increased by about $8, according to CMS.
The program continues to be a shining example of how the Federal government can create a new market for insurance from a green field, imbue it with fierce competition among private companies, and regulate the hell out of it to achieve a major public good. Part D has come in well over $100 billion cheaper than anyone thought it would on the Hill in 2003, and the vast majority of beneficiaries are happy with their choice of plan. The program has also been shown to reduce the incidence of unnecessary hospitalizations among those enrolled.
Sounds like a blueprint for health reform. Our government hasn't exactly demonstrated lately that it can learn from its mistakes; maybe we'll have more luck learning from our successes.
‘Dual-Eligibles' Require New Ideas, Not Cuts
Norm Ornstein from the American Enterprise Institute had a tremendous op-ed in Roll Call this week that deserves reprint here. I couldn't agree more, and find new ideas for dual eligibles -- managed long-term care through home and community-based services instead of institutions, aggressive coordinated care, and culturally-competent services -- among the most exciting work we do with our clients.
Observers need look no further than Care Improvement Plus, the chronic-care Special Needs Plan based in Baltimore that focuses on rural dual eligibles I'm thrilled to serve as a Director for. CIP offers physician, nurse and pharmacist call center support to its members, an aggressive house call program deploying a "mobile primary care network", and other critical innovations that redesign local healthcare delivery to meet the unique needs of duals.
Norm's exactly right -- these ideas need support and expansion from Congress and the Administration, not a budget meat-axe.
‘Dual-Eligibles' Require New Ideas, Not Cuts By Norman Ornstein
Roll Call Contributing Writer
July 6, 2011, Midnight
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The public attention to negotiations between Congress and the White House over budget cuts has focused primarily on cuts in discretionary domestic programs, Medicare and Social Security. Almost lost in the shuffle has been Medicaid — in part because both parties and both branches have agreed that large cuts in Medicaid are needed and assumed that cuts that hit the poor are less politically dangerous than cuts that hit the middle class or elderly.
That assumption is dead wrong. The single largest component of Medicaid is long-term care for the elderly, followed by care for the seriously disabled. And the biggest chunk of all is care for what are called the "dual-eligibles," those who qualify for both Medicare and Medicaid.
The long-term-care component has grown dramatically as Medicaid has become the de facto program for long-term care in the country. Of course, the recipients of it are poor as defined by the government — but most are middle-class elderly who have either diverted assets over time to their children and grandchildren to trigger Medicaid eligibility or depleted their savings on nursing home care. Also growing as a share of Medicaid spending is care for the seriously disabled, including a large share of those Americans with mental incapacities, ranging from Down syndrome to schizophrenia to Alzheimer's disease, along with those with serious physical conditions such as quadriplegia.
Medicaid care includes providing assistance during the day so family members can work and provide for their families, including the disabled ones, while giving some quality of life to all concerned.
The 9.7 million dual-eligibles are the most important set of beneficiaries because they take up a huge share of both the Medicaid and Medicare budgets and because they represent the greatest challenge and the greatest opportunity when it comes to ballooning health care costs.
As Janet Adamy noted in the Wall Street Journal, the dual-eligibles make up 15 percent of the enrollees in Medicaid but account for 39 percent of Medicaid spending — and 27 percent of Medicare outlays.
These are the most chronically ill people in the society, and they account for a huge share of health care costs.
As Adamy pointed out, a large share of the cost problem arises from the lack of coordination between programs, leading to mismanagement of care and waste, with far more hospital days and higher nursing home and rehabilitation costs than should be the case given the problems.
The higher costs don't mean better patient care; instead, patients are often shuffled around from place to place or put in limbo when the two programs argue over which one is responsible for treatment or kept in institutional facilities when it would be better for them — and less costly — to get care at home.
Some of the problems flow from the reality that Medicaid reimbursement rates are too low, leading providers to look for ways to shift the costs to Medicare, often in ways that are bad for treatment and disruptive for patients and their families.
Just as we never made a conscious policy decision to make Medicaid our long-term care mainstay, we never thought about the issues of dual eligibility. It is not at all clear that the negotiations over the budget are bringing any new thinking to the table — ways to reduce costs while improving the efficiency of care.
It is certainly not clear that the preferred response of Rep. Paul Ryan (R-Wis.) and his Republican allies, giving states less money for and more flexibility over Medicaid, will do anything to help dual-eligibles or create more effective programs for them or for others with serious mental and physical disabilities.
What is clear is that, as in so many cases, we are moving to cut spending without thinking through how to cut that spending or in what ways a short-term savings will result in longer-term burdens.
If Medicaid cuts out the opportunities for those caring for seriously disabled family members to work, that will mean hardship for the family — and a less productive workforce. Taking away day programs for the seriously disabled will take away from many their opportunity to work or contribute to society.
The same is true for the rest of the Medicaid population; a failure to provide prenatal care to pregnant women or to enable them to get their kids' ear infections treated will mean more infant mortality, less healthy children and, ultimately, a less productive workforce.
There is no panacea here. One of the advantages that could accrue from the Patient Protection and Affordable Care Act's commission overseeing Medicare is that it could find better ways of dealing with dual-eligibles — but the panel is under siege from conservatives.
Perversely, one way to improve care and reduce long-term costs — providing more realistic Medicaid rates for providers — is unlikely because the focus is on cutting now, not saving later.
There is little evidence from the states, especially those that have high Medicaid burdens such as Texas, that there is any spur to innovation that will lead to better treatments with lower outlays; governors such as Rick Perry will just cut the already-meager benefits.
We might end up with a bipartisan approach to budget and deficit cutting. What a shame that we can't have a similar approach to finding a better and less expensive way to deal with the sickest among us.
Norman Ornstein is a resident scholar at the American Enterprise Institute.