Every fall between October 15 and December 7, many of the 60 million Americans who are eligible for Medicare sit at their kitchen table, log onto a computer, and go through the annual ritual of selecting how they want to receive their benefits. Consumers must make a choice as to whether to have their benefits administered by the federal government (Medicare fee-for-service or FFS) or through a private sector plan (Medicare Advantage or MA).
Today, 37 percent of these Americans (nearly 22 million) have chosen MA plans,
administered by payers, who are private sector organizations. That number is expected to grow almost 10 percent to more than 24.4 million after this fall’s open selection period, according to the Centers for Medicare & Medicaid Services (CMS). With so much attention focused on the current debate over the merits of Medicare for All, it is easy to lose sight of this important development in the marketplace.
McKinsey’s Center for US Health System Reform recently completed independent research on the widening array of options available to consumers selecting MA plans this fall, based on public use data files from CMS. Two realities with major implications for the healthcare system stand out. First, we see payers improving affordability for consumers, with average out-of-pocket maximums for $0 premium plans (seniors pay no monthly premium beyond their Part B premiums in these plans) lowered by 4 percent, and in some markets a new wave of products that give seniors a refund on their Medicare Part B premiums. Second, MA consumers have a burgeoning set of supplemental benefit options, in addition to the traditional and federally mandated benefits. These benefits focus on a spectrum of care such as nicotine replacement therapy and caregiver support. Add it all up and what you have is interesting: Against the backdrop of an industry that has been criticized for persistently risings costs without much to show in terms of benefits (e.g., alarmingly, life expectancy in the United States is declining), seniors in the United States may experience an opportunity to effectively get more for less.
Since 2009, the percentage of seniors choosing MA plans has risen by 92 percent.
Why are more seniors choosing MA plans? One reason: Many MA plans offer more benefits and have the potential of lowering what seniors pay. Whether through limiting size of provider networks, care management, prior authorization for high-cost treatments that could cause delays, payment reductions to providers, novel arrangements with providers (which may vary in quality), or other cost savings measures, MA plans are able to cover guaranteed Medicare benefits at a 9 to 10 percent discount to Medicare FFS.
(When total payments to MA plans are taken into account, MA received 1 to 2 percent higher payments than FFS, in part due to a policy choice to fund “supplemental benefits” in MA.) These plans can either lower costs for Medicare members or offer them extra benefits on top of the ones guaranteed by the federal government. For example, MA plans must cap seniors’ out-of-pocket costs at $6,700 (in network) each year.
That’s a stipulation not applied to Medicare FFS. MA plans also often offer vision, dental, and fitness benefits. Of course, innovation continues to occur in Medicare FFS as well—for example, CMS began reimbursing for an expanded set of telehealth services, which can enable more convenient access to care, for example, in rural areas and for individuals with behavioral health issues. The agency has also taken steps to promote access to innovative therapies for fee-for-service consumers, including chimeric antigen receptor (CAR) T-Cell cancer therapy.
Seniors typically give Medicare FFS quality an estimated 85 percent approval rating, according to an annual survey by CMS.
If history is any guide, more than 60 percent of Medicare eligible seniors choose their coverage plans in the last few weeks of open enrollment. The 15 percent increase in the number of 2020 plan offerings (including a 25 percent increase in $0 premium plan offerings) present some startling realities:
- In some markets (e.g., 23 percent of plans offered in Florida), Medicare consumers can select a “Part B giveback” product that offers a partial “refund” on the $135.50/month premium every Medicare enrollee has to pay to participate in the program (whether in Medicare FFS or MA).
- For the second year, Medicare consumers will see new types of supplemental benefits (beyond vision, dental, and fitness) such as nicotine replacement therapy, meal delivery, mental health and substance misuse, and caregiver support (in response to new CMS regulations). Plans offering these benefits increased from 51 percent to 57 percent for 2020, including new benefits such as subsidies for Apple Watches.
In addition, MA quality ratings have increased to an enrollment-weighted average of 4.17 out of 5 for 2020 (up from 3.18 in 2011), with nearly 81 percent of seniors enrolled in a top-rated plan (based on 4 or more Stars within a metric system used by CMS).
Moreover, MA consumers have new payer options. By our count, 10 new organizations are entering the Medicare Advantage prescription drug plan (MA-PD) market in 2020, including technology-enabled entrants such as Oscar and Zing Health. Other recent venture-capital backed entrants are continuing to expand their MA-PD footprint (even while penetration in lives remains low versus more established incumbents)—including Bright Health (97 percent increase in counties), Devoted Health (50 percent increase in counties), and Clover (31 percent more counties).
If the trend in the last few years are any indication, a majority of Medicare consumers may select Medicare Advantage in the next few years. While our current healthcare news and holiday family meals may focus on debating Medicare for All, there is a positive element that everyone can agree upon: More choices for seniors.
Click here for more information from McKinsey’s Center for US Health System Reform on the 2020 Medicare Advantage market.