The Medicare Advantage Budget Fights Will Be Brutal

The annual enrollment period for Medicare Advantage plans and Medicare Part D drug plans starts Friday and is set to run until Dec. 7. The Medicare Advantage program has won financial services. Everyone wants in. The program gives private health insurers and other types of health coverage providers, such as health maintenance organizations, a chance to offer an alternative to traditional Medicare coverage using a combination of the enrollees' premiums and subsidies from the federal government. The private plan issuers typically find the cash to fill the many holes in traditional Medicare coverage, and add extra benefits, by encouraging enrollees to see doctors and hospitals in networks of providers that have agreed to accept discounted fees, rather than letting the enrollees see any provider willing to accept Medicare rates and abide by Medicare program rules. The plans sold in the upcoming annual enrollment period, which will take effect Jan. 1, 2022, will provide a critical source of financial and personal stability for about 28 million Americans. The issuers will get a steady, relatively predictable, interest-rate-resistant, stock-market-resistant stream of revenue and earnings, and many of them will have a relatively solid, predictable stream of fees and commissions to agents, brokers and distribution support services providers. Walmart opens up to Medicare plan enrollment tables to serve its customers, increase foot traffic and earn revenue. Walgreens and other large retailers also let the tables in. CVS took the Medicare plan market seriously enough to acquire Aetna, one of the biggest Medicare plan providers, and now ranks third in terms of market share. (For a look at the three Medicare Advantage program leads, which together account for 55% of Medicare Advantage program premium revenue, see the slideshow above, which is based on data from Mark Farrah Associates.) But keeping the happiest little financial services lifeboat humming may be challenging. Here are five predictions about the rip currents, sea monsters and sea gulls that could lie ahead.

1. Anyone in Washington who needs cash will be jealous.

Medicare Advantage plan issuers assert that the plans provide extra financial support and benefits — such as dental insurance, vision care insurance and exercise programs — that enrollees need, for a risk-adjusted cost that might be about the same as, or just a little more than, what the traditional Medicare program pays for much skimpier services. But many members of Congress and their budget advisors see the situation differently. Sen. Bernie Sanders, an independent from Vermont, has long championed a government-run, single-payer health care system that would eliminate the traditional Medicare program, the Medicare Advantage program and the Medicare supplement insurance program, which pays most of the deductibles, coinsurance amounts and co-payments associated with traditional Medicare. Sanders and his supporters say his proposal would replace all current health insurance programs with one program that would be much easier and cheaper to run, and that could save enough money to use the savings to pay for many extra benefits, such as universal federal long-term care coverage. The Committee for a Responsible Federal Budget, an independent policy group partly funded by a foundation linked to Peter Peterson, a Blackstone co-founder, recently suggested that one way for Democrats in Congress to pay for a modest expansion of Affordable Care Act health insurance subsidies would be to impose $200 billion in federal health care program costs cuts, by reducing spending associated with Medicare providers, Medicare Advantage and drugs.

2. Consumer interest will be strong.

Plan issuers and distributors are flooding radio and TV with Medicare plan ads. One indication of the impact of Medicare plan marketing campaigns is the popularity of the search term "medicare advantage" on Google. Google Trends charts show that popularity of the term reached its all-time peak in October 2019 and October 2020, at the beginning of the past two Medicare plan annual enrollment periods. Google Trends charts show how the popularity of a search term varies over time when compared with the all-time peak search activity figure, which is set at 100. Here's what has happened to the Google Trends search activity rating for "medicare advantage," for the first full week that ended before Oct. 15:

• 2019: 60.
• 2020: 64.
• 2021: 81.

3. "Social determinants of health" benefits could get more attention.

Seema Verma, the Centers for Medicare & Medicaid Services head under then-President Donald Trump, began letting Medicare Advantage plans offer benefits related to the "social determinants of health" — including benefits resembling long-term care benefits, such as meal delivery services, and respite care services for caregivers — in 2019. The number of plans offering those types of benefits increased to 845 in 2021, from 245 in 2020, according to a report commissioned by a Better Medicare Alliance affiliate. In the first three years, uncertainty about program rules and enrollee interest in the benefits limited publicity about the new types of benefits. This year, many carriers are featuring the new types of benefits in ads and other marketing materials. Cigna, for example, says a new Medicare Advantage plan social connection program will supply "a pal to help with activities of daily living and reduce loneliness." A new Medicare Advantage plan that CVS's Aetna unit is offering with Allina in Minnesota will provide 14 meals over seven days, with no copay, after an inpatient hospital or skilled nursing center discharge.

4. A rebound in use of health care could squeeze the issuers' profit margins.

Many health insurers reported unusually low costs and high profits for 2020, because the COVID-19 pandemic sharply reduced use of ordinary care from March through June that year, and because COVID-19 treatment costs were modest in many parts of the country, or bills for treatment came in very late. A return to normal use of ordinary care and an increase in COVID-19 prevention and treatment care costs seems to be creeping into the insurers' earnings. Mark Farrah Associates reports that in the second quarter of this year, Medicare Advantage plan premiums increased 1.6% per member per month from the level recorded in the second quarter of 2020, to $1,124. Over that same period, medical expenses increased 10.6% per member per month, to $970. The sharp increase in medical expenses pushed the ratio of Medicare Advantage plan medical expenses to premiums to 86.3%, from just 79.3% a year earlier.

5. Increased competition could squeeze agent and brokers' revenue.

In some markets, insurers have paid agents little or nothing, because they haven't really wanted to make sales. Many Medicare Advantage plan issuers have been eager to increase sales and have been paying attractive commissions. It's possible, however, that competition between intermediaries is starting to pull commissions down. Two publicly traded web brokers, eHealth and GoHealth, put estimates of the lifetime value of commissions per approved member in their quarterly earnings reports. Their latest lifetime value figures give a mixed picture of what's happening to commission revenue projections. At eHealth, lifetime value fell to $908 in the second quarter of 2021 for Medicare Advantage enrollees, from $945 in the second quarter of 2020. For Medicare Part D drug plan enrollees, estimated lifetime value fell to $216, from $244. At GoHealth, estimated lifetime value increased to $953, from $905, for Medicare Advantage enrollees and held steady at $215 for drug plan enrollees. (Image: Adobe Stock)