In March 2010, 11.1 million Medicare beneficiaries were enrolled in Medicare Advantage (MA) plans, up from 10.5 million in March 2009. Enrollment in private fee-for-service (PFFS) Medicare Advantage plans declined as some firms left the market, but the losses were more than offset by gains in enrollment in coordinated care plans, particularly local and regional preferred provider organizations (PPOs).
A new analysis by the Kaiser Family Foundation finds a small number of firms dominate Medicare Advantage enrollment both nationally and in most states; for example, in 14 states and the District of Columbia, a single firm accounts for more than half of all Medicare Advantage enrollment. This is true despite the fact that the average Medicare beneficiary has 33 Medicare Advantage plans available in their area, with the average enrollee paying a monthly premium of $44 per month, a 22 percent increase since 2009 ($36 per month). The health reform legislation of 2010 gradually phases down payments to Medicare Advantage plans over time, which is expected to ultimately affect plan participation, enrollment, premiums, and extra benefits. Yet, even with these changes, Medicare Advantage plans can be expected to remain an important option for many beneficiaries. By using this information, agents can understand what clients in their area might be interested in purchasing, and make educated decisions based on buying habits.
Medicare Advantage enrollment increased 5.7 percent between 2009 and 2010, with
11.1 million beneficiaries in Medicare Advantage plans, or almost 1 in 4 (24 percent) Medicare beneficiaries. Most (83 percent) beneficiaries in Medicare Advantage plans enrolled individually; the rest are retirees enrolled through group plans offered by a former employer. In 2010, individual enrollment increased 5.8 percent and group enrollment increased 4.9 percent. The gain in enrollment occurred even though the total number of Medicare Advantage plans declined by 18 percent from 2009 to 2010, mostly due to fewer PFFS plans and consolidation of smaller plans.
Enrollment by plan type
The distribution of enrollment across plan types shifted in 2010, with fewer beneficiaries in PFFS plans and more beneficiaries in PPOs. PFFS enrollment declined by 0.7 million in 2010, reversing what had previously been a steady growth in enrollment since 2005. The decline in PFFS enrollment was more than offset by a 43 percent increase in PPO enrollment between 2009 and 2010. As was the case in previous years, HMOs dominate enrollment, with nearly two-thirds of all Medicare Advantage enrollees (65 percent) in an HMO in 2010, but local and regional PPOs — whose enrollment almost doubled between 2009 and 2010 — now have a growing share of the market. In 2010, 12 percent of Medicare Advantage enrollees were in local PPOs and 7 percent in regional PPOs. The growth in regional PPOs is driven heavily by the almost doubling of PPO enrollment in UnitedHealthcare regional PPOs and the substantial growth in this segment by Humana.
HMOs dominate enrollment in urban counties (69 percent), while PFFS plans account for the largest share of enrollment in rural counties (37 percent). Local and regional PPOs gained a substantially larger share of the rural market, with the rural market share of each increasing from 8 percent in 2009 to 14 percent in 2010.
Geographic variation in enrollment
Reflecting both the greater prevalence of Medicare Advantage plans in urban counties as well as other factors that account for variation in Medicare Advantage enrollment, Medicare
Advantage penetration varies substantially by state. In 10 states (AK, DE, IL, MD, MS, ND, NH, SD, VT, and WY), less than ten percent of all beneficiaries are in a Medicare Advantage plan. Medicare Advantage continues to be virtually nonexistent in Alaska, with only 85 people enrolled in 2010. By contrast, 41 percent of beneficiaries living in Oregon are enrolled in a Medicare Advantage plan, and in 12 other states, 30 percent or more of beneficiaries are in a Medicare Advantage plan. Even within states, Medicare Advantage penetration often varies considerably across counties. For example, 36 percent of beneficiaries in Queens county, New York are enrolled in Medicare Advantage plans in 2010, but only 20 percent of beneficiaries in Nassau county, the neighboring county, are enrolled in Medicare Advantage plans in 2010.
Enrollment by firm
A small number of firms continue to dominate the Medicare Advantage market. One third of all Medicare Advantage enrollees in 2010 are in plans affiliated with two firms — UnitedHealthcare (18 percent) and Humana (15 percent). Blue Cross/Blue Shield (BCBS) affiliates, which are multiple independent firms sharing the BCBS trademark, account for 15 percent. Kaiser Permanente accounts for the next largest share of the market (9 percent) and Aetna accounts for 4 percent. The remainder of enrollment is in a combination of other national firms (such as Universal American, HealthNet, Coventry, Health Spring, and Wellcare) and more locally based firms, some of which are relatively large within their individual markets. Some large firms experienced large decreases in enrollment between 2009 and 2010, including Coventry (60 percent decrease), WellCare (53 percent decrease), Wellpoint (40 percent decrease), and Sterling (29 percent decrease).
The average enrollee in an individual Medicare Advantage plan with Part D coverage (MA-PD) paid a premium of $44 per month in 2010, up 22 percent from $36 in 2009. In an analysis in November 2009, it was estimated that the average premium for MA-PD enrollees currently enrolled in a plan that was continuing in 2010 would increase 32 percent – from $36 to $49. The fact that the overall increase now based on all 2010 enrollees is somewhat smaller reflects both the shift of some 2009 enrollees to lower premium plans in 2010 and the choices made by new enrollees. In 2010, average monthly premiums, weighted by enrollment, are lower for MA-PD HMOs ($37) than local PPOs ($63).
Average premiums for PFFS and regional PPOs are situated in between. The average HMO premium paid by a MA-PD enrollee increased 19 percent between 2009 and 2010, as compared to little to no increase in the average premium for local PPOs, a 54 percent increase in average premiums for regional PPOs, and 22 percent increase in average premiums for PFFS plans. Almost half of all MA-PD enrollees in 2010 (46 percent) are in plans that charge no additional premium for coverage, including 58 percent of enrollees in HMOs and 48 percent of enrollees in regional PPOs, the latter of which largely reflects UnitedHealthcare’s plan design, as discussed below. Only 23 percent of local PPO enrollees and 15 percent of PFFS plan enrollees are in zero premium plans.
Variation in premiums across the different types of Medicare Advantage plans reflects strategic marketing decisions made by firms, such as whether to emphasize low premiums or extra benefits. Premiums are also influenced by factors that firms can only partially control, such as the efficiency of different plan types and geographical variation in costs. Kaiser Permanente, for example, has a unique delivery system and probably relies less on low premiums than on the attractiveness of the overall package to attract and retain enrollees; only 27 percent of Kaiser Permanente’s MA-PD HMO enrollees are in zero premium plans. Low premiums, in contrast, appear to be more important in marketing UnitedHealthcare’s plans, where 80 percent of HMO enrollees, 81 percent of local PPO enrollees, and 97 percent of regional PPO enrollees are in zero premium plans.
Although firms face some restrictions in the ways they can configure Medicare Advantage benefits, Medicare’s gaps and sizeable cost-sharing requirements leave considerable room to vary the ways in which Medicare Advantage benefits and cost-sharing, in particular, are structured. Such variation in design can lead to substantial differences in expected cost-sharing for beneficiaries needing more or less care.
The trend toward growth in Medicare Advantage enrollment continued in 2010 despite the drop in number of available Medicare Advantage plans, particularly PFFS plans, and increases in Medicare Advantage premiums. Enrollment in local and regional PPOs has increased, giving PPOs a larger role in the Medicare Advantage market. Although regional PPOs tend to have less comprehensive benefits than other plan types, they offer broad geographical coverage with relatively low premiums, which appears to have made them attractive to certain enrollees.
Traditionally, Medicare Advantage has been most attractive to moderate income individuals who are less likely than higher income beneficiaries to have access to employer-sponsored retiree health benefits, and less likely than lower income beneficiaries to qualify for Medicaid. PPOs may be positioning themselves to compete for higher income beneficiaries, particularly as
Medigap premiums increase and employer-sponsored retiree coverage erodes. To the extent that PPOs are beginning to compete for moderate to higher income beneficiaries, they may have greater flexibility than other Medicare Advantage plans to raise premiums to compensate for payment reductions in future years.
The health reform legislation of 2010 made a number of changes to the Medicare Advantage program, including reductions in payments over time that are intended to bring average payments to plans closer to Medicare fee-for-service costs, reward high quality plans, and strengthen protections for beneficiaries enrolled in Medicare Advantage plans. Over time, these changes are expected to affect plan participation, enrollment, premiums and benefits.
With dozens of Medicare Advantage plans available to beneficiaries throughout the country, and with payment changes phased in gradually, Medicare Advantage plans are likely to remain a key option for beneficiaries in the future. Still, changes in the Medicare Advantage marketplace could pose uncertainties for beneficiaries, similar to what occurred in the late 1990s following the Balanced Budget Act of 1997.
Although competition is a stated goal of Medicare Advantage, in fact the market is very concentrated and a few firms are responsible for plans that include a very large share of enrollees. With many highly concentrated markets, Medicare Advantage is more similar to an oligopolistic market than a competitive market. That is, a few firms dominate enrollment at the national level, and at the state level. This dominance may allow them disproportionate influence over the Medicare Advantage market. Even with changes in the Medicare Advantage program, Medicare Advantage plans can be expected to remain an important option for many beneficiaries, and decisions made by Medicare Advantage firms could have important implications for beneficiaries’ out-of-pocket costs and access to providers – effects which should continue to be monitored.