The last five years have proven to be some of the most exciting and perilous times for insurance carriers and producers in the industry. Talk to producers just prior to the Annual Election Period and you’ll receive a mixture of excitement for the coming season and distaste for the rules governing the entire process. Many Medicare insurers have been exempt from the recession, some adding millions of members to their rolls–quite a difference from other sectors of the insurance industry that have seen little, if any growth. But what will the future hold? Certainly the topsy-turvy nature of the market has yet to stop. This article takes a look at reasons to be optimistic about the future of Medicare-related products and some equally important reasons to be cautious.
Reasons for optimism
1. We’re seeing a growth market in terms of Medicare beneficiaries.
The size of the Medicare Market is growing, and is projected to increase from 48.6 million in 2011 to over
80 million by 2030–an astonishing 70 percent increase in Medicare enrollments. Fueled by a Baby
Boomer population aging into Medicare at roughly 3 million per year, opportunities abound.
2. The Part D donut hole is closing and many brand-name drugs are becoming generics.
You wouldn’t know it from all the talk about the skyrocketing cost of health care, but seniors are actually paying less today for their prescription drugs than they were five years ago, and they will continue to pay less in the future, according to a study by the IMS Institute for Healthcare Informatics and Ernst Berndt of the Massachusetts Institute of Technology and the National Bureau of Economic Research.
Researchers said eight of the 10 most commonly prescribed drug classes covered by Part D have fallen to an average daily cost of therapy of $1 in December 2010 from $1.50 in January 2006. They predict this price will continue to fall to 65 cents a day by 2015. This is due in large part to expiring patents on seven of the top 20 best-selling drugs in the next two years, according to Medco. That includes the world’s most popular prescription, Lipitor. This is great news for seniors because replacing a brand-name drug with a generic can reduce costs by as much as 80 percent. Other popular drugs set to be replaced by cheaper generics include Plavix, Singulair, Lexapro, Protonix, Diovan, Zyprexa and Enbrel.
3. Quality Stars ratings reward carriers for customer satisfaction.
Agents agree that the customer service of Medicare Advantage carriers pales in comparison to that of Medicare Supplement carriers. Part of that is due to the difficulty of processing hundreds of thousands of applications during the short AEP. Another factor is the interface with CMS for membership eligibility and processing. And the regulations involved with communications to a Medicare beneficiary are dizzying — this year saw 197 pages of marketing regulations compliments of CMS. As if there wasn’t incentive enough for MA carriers to provide outstanding service, CMS is offering additional compensation to carriers for the next few years if they score above three stars. This will help offset some of the reimbursement reductions and stabilize the market. A carrier that scores five stars gets to sell year-round!
4. Employers continue to drop group retiree coverage in favor of individual plans.
It all started a few years ago when the “Big Three” auto companies started trimming their retirees from their group health plans. With the Retiree Drug Subsidy now subject to taxation, many larger employers have followed suit. This phenomenon is primarily happening amongst Fortune 500 companies who were traditionally far more likely to offer group retiree benefits. While employers have been successful in reducing their future liabilities, retirees have had to shop in the individual market for their plans. Most have enrolled through call centers controlled by newcomers such as Extend Health and more recently Aon/Hewitt, but agents have succeeded in capturing a share of the market and a replacement market is growing. This trend is expected to continue in the coming few years and the specialty call centers are likely to participate in public and private exchange programs.
Kaiser/HRET Survey of Employers, 2010
5. Consumer preferences show interest in shopping online.
The Boomer population is increasingly open to researching insurance products online and becoming better educated about insurance options than the generations that preceded them. According to research from Pew Internet Project in December 2010 and April 2011, 68 percent of individuals age 60-64 use the Internet and 92 percent ages 50-59 are Internet users. Why is this important? Increasingly, buyers can be reached using Pay-Per-Click and Search Engine Optimization, not just through traditional and costly direct mail methods. The technology-savvy producer has to like the direction of the market, especially for that segment aging into Medicare.
Reasons for caution
Even with all this good news, there is still plenty of room for concern. Here are the five issues agents are facing as we approach the Annual Election Period.
1. Medicare Supplement plans are facing challenges in deficit talks.
Rep. Pete Stark and Sen. John Kerry introduced companion bills that would apply the health care law’s new medical loss ratio rules to private Medigap plans. Currently, Medigap plans have a 65 percent MLR requirement for the individual market and a 75 percent requirement in the large group market. The legislation, dubbed the “Medigap Medical Loss Ratio Improvement Act,” would increase those percentages: private Medigap plans would have to spend 80 percent of premium dollars on medical care in the individual market, and 85 percent in the large group market. Reps. Henry Waxman and Frank Pallone are also sponsors of the House bill. The House GOP says this bill won’t go anywhere, but we should be aware of the legislation.
Separately, Senators Coburn and Lieberman are proposing changes to Med Supp in deficit negotiations: Single annual deductible $550 and Coinsurance of 20 percent of medical costs up to cap, from around $5,000 to $7,500. This is consistent with what the Deficit Commission also proposed.
2. Guarantee Issue claims experience for Medicare Supplement business is spiking loss ratios.
The problem with employer groups dropping group retiree coverage is that this business is guarantee issued into individual Medicare supplement plans, and has begun to have a negative impact on loss ratios and increasing rates above normal medical inflation trends. Carriers taking on a large amount of guarantee issue business are taking corrective actions, including double-digit rate increases, dropping commissions for replacement business and tightening up underwriting rules. In some cases, Plan N was removed from the market less than a year after it was introduced as part of the trumpeted modernized plans.
3. Reimbursement cuts are decreasing options for seniors.
CMS reductions in reimbursement and the corresponding decreased availability of private fee-for-service plans have reduced Medicare Advantage options for seniors, particularly in rural areas. In addition, regional PPOs are falling out of favor due to lesser contract controls to keep costs down. So what remains? A heavy focus on HMO and local PPO plans, sometimes referred to as Accountable Care Organizations or even High-Performance Networks. This is akin to the Medicare Plus Choice programs of the 1990s, which means tighter networks, more integrated delivery of service and greater focus on cost containment. There are positives, such as outstanding medical and disease management programs, but gone are the days of a carrier boasting a very broad network. Most of the emphasis today is on developing tight, efficient networks that help a carrier achieve integrated services that lead to higher quality stars.
4. Regulations continue to create a high barrier for entry in the Medicare Advantage market.
Scope of appointment, annual recertification and secret shoppers aside, this year’s CMS marketing regulations identify the use of the word “Medicare” as requiring CMS approval if used on consumer facing websites or generic marketing material, including generic direct mail lead generation pieces. Do they really mean that anything in writing using the word Medicare requires CMS approval? I asked three carriers that question and here were the responses:
? “We believe they did not mean it the way that it was written.”
? “Yes, you must submit your marketing pieces to the MA carrier for submission to CMS.”
? “What regulation? We haven’t seen it yet.”
So it goes with new regulations. It will take a few months to sort this new regulation out and determine how to enforce it, since it was only published for Medicare Advantage producers but clearly holds implications for those selling Medicare Supplement as well.
5. Health care reform will set up exchanges, many of which exclude agents.
One goal of health insurance exchanges set up in individual states is to limit the role of the agent. Granted, many seniors prefer to shop online, but only a small percentage feel comfortable buying online. There are a number of technology vendors that are setting up websites with the idea of selling major medical and Medicare-related products through public and/or private exchanges. A slice of the market goes with it. How much? We don’t know yet, but it pays for agents to stay current with technology and utilize available tools that keep their business model contemporary.
The whole picture
So, what does it all mean? We are operating in a growth market based on demographic shifts in the United States and there will not be enough agents to serve the market, leaving room for new technology and new players in the market. While there are certainly challenges, there remain compelling opportunities. Expect adversity and be resilient. Put on your seatbelt: The ride will be bumpy and maddening, but opportunities abound.
Dwane McFerrin is vice president of Medicare solutions for Senior Market Sales Inc. He can be reached at firstname.lastname@example.org.
For more exclusive health insurance coverage, visit ASJ’s Health Insurance Resource Center.
Past health insurance stories from ASJ: