Healthy Outlook for Medicare Advantage and Part D from CMS in 2014

September 24, 2013
|In Part D, Performance Optimization, Policy & Health Reform, Star Ratings, Strategy
|By GHG Advisors

Last week amid all the ObamaCare drama on the Hill CMS released the 2014 data for Medicare Advantage (MA) and Prescription Drug Plan (PDP) bids. The numbers show a better-than-expected 2013 and a healthy 2014 ahead for Medicare health plans.  The market will see new service areas, lower bids, more zero premium plans, and more mainstreaming of Medicare Advantage as it approaches one-third of the program. CMS noted significant gains on plan quality measures, pointing out that more plans are receiving a rank of four -plus on Star Ratings, the minimum threshold for quality bonuses in 2015 when the quality demonstration expires.  Overall there is clear evidence that CMS quality incentives are working, and that MA will continue its steady ~10% growth in 2014.

For MA, there were 35,070 bids for 2014, down 18% from 2013, but when you extract Private Fee-for-Service (graciously in its death throes), HMO/PPO/Special Needs Plan bids were only down 5.7%, and those largely due to consolidation among plan sponsors this year. Medicare health plans continue to wind down PFFS plans 61% year over year, and PDP bids showed similar stability, and evidence of continuing consolidation.

Some of the major points and trends we observed:

Medicare Advantage

  • CMS indicates that Medicare Advantage membership will close 2013 with 10% growth, with similar gains expected next year.  Three years after passage of the Affordable Care Act, and on the verge of its deepest cuts to MA phasing in in 2014, it’s clear plans are adapting and evolving — and that there’s no exodus in sight.
  • Beneficiaries will have an average of 28 MA plan choices. The average MA national benchmark was around $31, and premiums are expected to increase by $1.64, or 5.3%, over 2013, at $32.60.  There are thousands of benefit design changes coming in 2014, like plans adding and eliminating copays and deductibles.  So while relative premium stability would suggest less volatility this enrollment season, benefit design changes will force millions of beneficiaries to go shopping this winter.
  • As a barometer of the industry’s continued health, each of the major publicly-traded MA companies are offering new HMOs in new markets for 2014:
    • Humana is expanding its HMOs in PA and OK.
    • UnitedHealth is expanding in VA, ME, MA, and NH.
    • Aetna/Coventry has new HMOs launching in LA, TX and WV.
    • Cigna is expanding in GA, AR, IN, NC and SC.
    • WellPoint is expanding in WA, NH, IN, ME and MO.
    • WellCare expands its footprint with its recent acquisition of Windsor Health Plans.

Medicare Prescription Drug-only Plans

  • A stunning finding in all the clutter, likely the result of the move to preferred pharmacy networks and the effect of increased buying power from consolidation: the cheapest PDP plans available in 2014 are a better buy than in 2013, and have 31% lower premiums than those available in 2010. Unbelievable.
    • ObamaCare haters take note: seven years after its launch, Medicare Part D serves as a shining example of how the Federal government can create an insurance market from a green field, regulate the hell out of it, and achieve a tremendous public good at much lower-than-expected cost.
  • Channel partnerships have come to define the top of the PDP food chain. Humana now offers the cheapest PDP plan across all 34 regions. The company’s Walmart Rx Plan has a monthly premium of $12.60 across every region, and this will be the fourth consecutive year that Humana is eligible for auto-assigns nationwide. UnitedHealth continues to make big gains with its AARP MedicareRx Saver Plus plan.
  • WellCare was “most improved bidder”, and is now be eligible for auto-assigns in 32 regions, up from 19 this year.  Aetna is losing auto-assignment in 5 regions, though none with significant enrollment.  These were evidence of clear strategic shifts by new Medicare leadership in both companies: WellCare deeper into the low-income segment, Aetna shifting more upscale.

All in all the CMS bid data shows Medicare health plan vital signs in hale and hearty territory for 2014.  It’s one ray of light — and should be a beacon for bipartisanship — as ObamaCare anarchy rages on.