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 Medicare Advantage Marketplace Snapshot Offers Clues to Providers

Amid moves by some long term and post-acute care (LT/PAC) providers to expand into health insurance through the marketing of Medicare Advantage (MA) plans to residents, a new report by Leavitt Partners offers a glimpse of how the MA marketplace functions, and how the lack of real competition impacts consumers. This insight may give interested providers a deeper view of the opportunities and challenges the increasingly popular MA trade offers.

The Leavitt report, “Medicare Advantage Premiums Higher in Markets with Concentrated Health Plans,” examines the relationship between the concentration of MA plans and the out-of-pocket costs to beneficiaries, as well as the association between health system concentration and MA premiums. Given the evidence, LT/PAC providers looking to diversify and enter the risk-based insurance world may have chances to break into markets currently being served by a limited number of insurers.

In the report, Leavitt researchers estimated the impact of health insurer and hospital system concentration on plan premiums and found:

·         Decreased competition for MA plans in any given county is associated with higher premiums;

·         The priciest premiums were in markets that lacked competition among MA payers and hospital markets, “suggesting the interaction between MA insurer concentration and hospital system concentration matters;” and

·         If all beneficiaries were in markets at least as competitive as the average market today, they would pay nearly $200 million less per year in premiums.

The meat of the Leavitt paper balances the fact that while enrollment in MA plans has nearly doubled in 10 years, from 9.3 million beneficiaries enrolled in 2007 to 17.6 million in 2016, the cost savings from seniors moving to private insurance has not been a great benefit for the Medicare program.

Several explanations exist for why MA has not saved Medicare money. Leavitt said one is that the bidding system used to determine how much Medicare pays to MA and whether MA plans charge a premium to beneficiaries may be flawed.

“Critics argue that the bidding system is not truly competitive because plans bid against a fixed, and known, benchmark rather than bidding against each other,” the report said. “Several studies have also concluded that the bidding system is not truly competitive because, controlling for underlying costs, plans respond to increasing benchmarks by increasing bids.”

And, conversely, in a fully competitive market, bids would be limited to underlying costs and not be tied to benchmark growth rate formulas.

The report said the MA bidding system has caused a discrepancy in how premiums are calculated for MA plans versus some private plans offered by employers. “The current MA bidding process shields beneficiaries from paying higher premiums. As the total cost of care goes up, Medicare pays more to MA plans but beneficiaries may not incur higher premiums,” researchers said.

For example, average premiums grew from $30.17 per month in 2007 to $30.96 in 2012, while the cost of MA grew an average of 2 percent per year during the same period, suggesting that premiums are not in synch with total costs.

As for what may be a solution, Leavitt said policymakers and stakeholders must keep in mind the relationship between market concentration and MA premiums, and how more competition could modestly shrink monthly premium costs and what Medicare pays to MA. “Strategies should be in place to monitor competition within markets, with special emphasis on maintaining current levels of competition,” the report said.

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