The Medicare Advantage Program in 2014. Executive Summary

04/07/2014

Private insurance plans were introduced into the Medicare program in the 1980s based on the theory that private plans could provide coordinated, high-quality care, and enhanced benefits for beneficiaries at a cost below that of the traditional fee-for-service (FFS) program. Under this scenario, beneficiaries would have a choice of plans from which they could obtain extra benefits for an extra premium.

Goal with Affordable Care Act:

The Affordable Care Act includes changes that are designed to make good on this original rationale:

  • Providing a choice of plans,
  • Maintaining and improving quality ,
  • Providing better value,
  • Keeping costs comparable to those of fee-for-service Medicare.

Baseline Before 2010:

Prior to the enactment of the Affordable Care Act, Medicare Advantage (MA) plans were being paid 114 percent of FFS costs on average – translating into an extra $1,280 per MA enrollee or $14 billion in higher aggregate payments, and a $3.35 per month increase in the Part B premiums paid by all Medicare beneficiaries during 2009.

Experience Under the Affordable Care Act:

In 2010, the Affordable Care Act made significant changes to the MA program that were designed to reduce higher MA payments while providing incentives for quality improvements. Concerns were raised that the Affordable Care Act would lead to a drop in beneficiary enrollment and a drop in plan participation. To the contrary, experience indicates that the MA program is moving in the right direction – beneficiaries have a choice of plans and are enrolling in record numbers, costs are coming down relative to FFS, while benefits remain stable and quality is improving.

  • Beneficiary Choice of MA Plans Remains High – Nearly all beneficiaries (99 percent) continue to have access to an MA plan in their area in 2014. Additionally, the number of plan choices has generally remained stable since the transition to FFS-based rates began in 2012. In 2014, the average beneficiary can choose from among 10 plans, including plans from a wide number of MA organizations.
  • Costs Are Coming Down – The transition to FFS-based rates under the Affordable Care Act, which began in 2012 and is scheduled to end in 2017, has already begun to reduce payments to MA plans relative to FFS Medicare (from 114 percent of FFS on average in 2009 to 106 percent of FFS in 2014). Additionally, average MA beneficiary premiums have decreased by 10 percent since the passage of the Affordable Care Act.
  • Quality Is Improving – In 2014, over half of all MA enrollees are enrolled in plans with four or more stars, which represents a significant increase from the 24 percent of enrollees who were in such plans in 2011 and the 37 percent of enrollees who were in such plans in 2013. Additionally, over one-third of MA contracts have four or more stars in 2014, compared to 14 percent in 2011.
  • Enrollment is at a Historic High and Increasing – MA enrollment has increased by over 30 percent since the enactment of the Affordable Care Act – enrollment is now at levels not ever seen before (private plan contracting began in the Medicare program in the early 1980s). Nationwide, approximately 15 million Medicare beneficiaries are now enrolled in an MA plan, which represents nearly 30 percent of all beneficiaries in the Medicare program, a historic high.
  • Plan Profitability Remains Strong – Insurers’ total revenues have increased by 29 percent, their combined operating profits have increased by 13 percent, and their profit margins have remained stable since the enactment of the Affordable Care Act, ranging from 5 to 6 percent on average. Health insurance companies have looked to Medicare Advantage as an area to increase enrollment as employer-sponsored insurance coverage has eroded.

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