Featured Health Business Daily Story, Dec. 6, 2010

MA in 2011: Slight Enrollment Gains, More Cost-Sharing, Major Acquisitions

Reprinted from HEALTH PLAN WEEK, the industry's leading source of objective business, financial and regulatory news of the health insurance industry.

November 22, 2010Volume 20Issue 42

Despite a shortened selling season, looming reimbursement cuts and fewer health plan operators in the marketplace, industry observers predict overall enrollment in Medicare Advantage (MA) plans will tick upward a bit next year. And 2011 could be a huge year for mergers and acquisitions, one industry consultant says.

The open-enrollment season for MA plans kicked off on Nov. 15 and will run until Dec. 31. CMS anticipates MA enrollment will grow by about 5% in 2011. In November, MA membership rose by 16,000 lives nationally — down from 18,000 in the year-ago period. To date, about 11.8 million are covered by an MA plan, up 559,000 from the beginning of the year. In a Nov. 17 note to investors, Carl McDonald, an equities analyst at Citigroup Global Markets, predicted MA enrollment would continue to increase in 2011, “because even seniors losing their current plan tend to pick another Medicare Advantage plan.”

In past years, the annual MA election period was followed by an open-enrollment period that ran from Jan. 1 to March 31. This year, there will be no extended enrollment period. The shortened selling season combined with fewer brokers selling MA products “is really going to impact health plans,” says Jeff Fox, president of Gorman Health Group, a Washington, D.C.-based consulting firm.

The shorter selling season for 2011 MA plans prompted some insurers to begin their marketing efforts earlier than usual. Health plans that began marketing as early as September are likely to have an advantage over their competitors, says Dennis Barnes, founder and president of Marketing Direct, Inc., a St. Louis-based direct marketing firm that works with health insurers.

That early dialogue with prospects, he says, translated to higher conversions and enrollments for those plans. “Therefore you should expect to see similar efforts as early as August 2011,” he says. “However, some [insurers] chose not to take this approach this year for fear of not keeping a lead warm until they have the ability to actually sell something.”

In an effort to shore up enrollment before rate cuts go into effect in 2012 and 2013, some health insurers will try to beef up their MA enrollment. Gorman Health Group CEO John Gorman predicts 2011 will be a “big year” for mergers and acquisitions in the MA space. “There will be some that go down this year that are going to blow people’s hair back!” he tells HPW, adding that HealthSpring, Inc.’s acquisition of Baltimore-based Bravo Health Inc. in August “was just the beginning. I don’t think that’s going to be the biggest of this next 12 months whatsoever.”

Profits for MA plans in 2011 will be tighter than in 2010 “because there is essentially a rate freeze [for MA plans], but medical inflation went up 6% to 8% in most markets,” he adds. That could cause some carriers to leave the market.

In September, the Obama administration hailed lower monthly MA premiums for 2011. Despite reform law provisions that require additional benefits, monthly rates will average $35.69 — down 45 cents from the 2010 average.

While CMS contends that the lower rates are due to its tougher negotiations with MA carriers, health plan executives queried by HPW say there is more to it. While CMS might have cracked down on MA rates, the premium decline is more likely due to the elimination of many high-cost MA plans. For the 2011 plan year, CMS requires that health insurers ensure that there is a “meaningful difference” in out-of-pocket costs between standard and enhanced Medicare Part D plans.

“Many health plans were faced with having two plans where [estimated out-of-pocket] differences may have been less than the CMS-required $20,” explains Brian Weible, an actuary and president of consulting firm Wakely Consulting Group, Inc. “Rather than enrich one plan, [some] health plans discontinued the higher-benefit plan…and voila, average premiums have been reduced.” The elimination of some private fee-for-service (PFFS) plans likely also contributed to the average rate decline as enrollees moved to either a network-based MA plan or traditional Medicare, he adds.

Case in point: In 2010, Virginia-based Optima Medicare offered a zero-premium plan and a low-cost-sharing plan that had a $148 monthly premium. For the 2011 plan year, Optima terminated the premium plan, and retained the zero-premium plan, but boosted the out-of-pocket maximums and copayments, explains Craig Ritter, owner of Harrisburg, Pa.-based Ritter Insurance Marketing. So eliminating the premium plan, technically, reduced the company’s average premium. “This is an extreme example, but fairly typical of what happened nationally,” he tells HPW. Ritter’s firm provides marketing services for insurers and recruits agents to sell products.

Fewer MA Plans, but More Options

In 2009, CMS urged plans with low MA enrollment (100 members or fewer) to voluntarily exit. For 2010, CMS boosted the threshold to 500 or fewer. Low- enrollment plans that weren’t able to justify staying in the system likely left, says Jeff White, vice president of marketing and development at Physicians Health Choice, which operates MA plans in Texas and Florida. The company has about 40,000 members in its HMO MA plans.

“There were a number of small [private fee-for-service] plans, that had to scramble to build [provider] networks, which is hard to do, particularly in rural markets,” White tells HPW. “In some markets, we saw some [dual-eligible Special Needs Plans] flat-out leave the market.”

Industry observers queried by HPW agree that beneficiaries who are enrolled in a discontinued MA plan are likely to enroll in another MA plan, rather than shift to traditional fee-for-service Medicare. To attract those customers and retain existing ones, MA carriers must focus on “effectiveness, efficiency, organizational engineering and a finely tuned broker channel,” says Frank Ingari, chairman and CEO of Essence Healthcare, a Missouri-based MA HMO that has about 50,000 members in Missouri, Illinois, Washington state and New York. “2011 will be that kind of a year as opposed to a year that has a big change in reimbursement.”

Physicians Health Choice’s HMO MA products typically have a zero premium. Although White’s firm has offered premium-based products in the past, those products tend to attract higher utilizers, which can lead to adverse selection. “It’s not a viable product in the long term,” he says.

At a recent conference, CMS Deputy Administrator Jonathan Blum indicated that MA compliance issues tended to be most common among carriers that increased enrollment too quickly.

“Those comments really resonated with me because it’s really hard to stay totally compliant in every aspect when you’re hiring a lot of new people and adding new geographies,” says Ingari. While he declines to offer a specific enrollment projection for 2011, he tells HPW that the company wants to contain its overall enrollment growth to no more than 20%.

Beneficiaries Will See More Cost Sharing

While premiums might decline in 2011, MA beneficiaries are likely to see more cost sharing. Beginning in 2011, MA plans cannot charge more than traditional Medicare for chemotherapy, dialysis, skilled nursing care, and other services deemed appropriate, according to CMS.

That change could hasten a trend toward lower-premium products with more cost sharing, Ritter says. Most MA operators, he says, would prefer to carry a zero premium MA plan with an annual $6,700 maximum out-of-pocket limit, which could help them avoid a dialysis patient or heavy user of Part B drugs (e.g., injectibles). “They’d rather see this person on a Plan F Medicare Supplement paying a $150 per month premium with zero cost sharing,” he says. “By setting the [out-of-pocket maximum] at $6,700, a $1,800 Medigap premium looks very attractive to a high utilizer.”

Ingari agrees and says that seniors who expect to use a lot of services will closely compare premiums, deductibles and cost sharing between MA plans. Healthy and active beneficiaries tend to gravitate toward zero-premium plans.

“Medicare enrollees can range from a 65-year-old marathon runner to an 85-year-old who is in institutionalized care,” he explains. “One of the benefits of MA is that there are many flavors to better fit certain parts of the population. It’s a good alternative to standard Medicare, which offers a tremendous base benefit but isn’t a one-size-fits-all option.”

Contact White at jwhite@phyhc.com, Weible at brianw@wakelyconsulting.com, Andy Shea for Ingari at ashea@essencehealthcare.com, Barnes at dbarnes@marketingdirect.com, Ritter at craigr@ritterim.com and Kierra Person for Gorman and Fox at kperson@gorman healthgroup.com.

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