August 23, 2018
The Medicare Advantage sector is experiencing steady growth. From the increasing number of enrolled beneficiaries, to health insurers investing in this privatized version of traditional Medicare, to partnerships and joint ventures with providers and retailers, there is opportunity for growth. Medicare Advantage Plans, sometime called “Part C” or “MA Plans,” are offered by private companies approved by Medicare. These plans provide Medicare Part A and Part B coverage, with most offering prescription drug coverage as well. Currently, about one-third of all Medicare beneficiaries are enrolled in Medicare Advantage plans, with projections showing that half of Medicare beneficiaries are expected to be in Advantage plans by 2020.
As the pool of eligible beneficiaries grows with the aging baby boomer generation, seniors are more often turning to Medicare Advantage plans for their coverage. One factor driving this trend is that Advantage plans offer supplemental benefits, such as vision and dental care, wellness programs and gym memberships, which are not covered under traditional Medicare. The Trump administration supports these plans with a 3.4% pay increase approved for 2019 and an expanded definition of supplemental benefits to include transportation and in-home care. President Obama’s Affordable Care Act also added a star ratings system to rate quality and customer satisfaction for consumers to review when choosing a Medicare Advantage plan.
Insurers are attracted to this sector not only for the growth, but also for the stability they provide. Medicare Advantage plans have not been the targets of major reform and in fact are seemingly one of the few bipartisan areas of agreement in healthcare. Analysts note that this makes Advantage plans a more stable source of payment since they are less prone to policy changes. Further, margins for Medicare Advantage plans average between 4% and 5%.
New Market Entrants
As with any growing market, there is space for new entrants. For example, just this week, Oscar Health, a New York insurance startup, announced it will stake a claim in the Medicare Advantage business in 2020 backed by a $375 million investment from Google’s parent company, Alphabet. Also announced this week, Anthem will partner with Walmart in 2019 to expand access to over-the-counter medications and health-related supplies to its Medicare Advantage customers. This following Anthem’s recent acquisition of two Florida-based Advantage plans shows Anthem’s increasing focus on its Medicare Advantage business. The challenge for new players is that the market is relatively concentrated, with the top seven players making up about 75% of the market. These players, including UnitedHealth and Humana, are increasing their Medicare Advantage enrollment and making further investments in the market. Humana recently acquired the home health company Kindred Healthcare and hospice provider Curo Health Services, further supporting the senior population. While there is no shortage of competition in the Medicare Advantage business, there is opportunity here to improve the quality and lower the cost of seniors’ care.
The information contained in this advisory is for general educational purposes only. It is presented with the understanding that neither the author nor Hancock, Daniel & Johnson, P.C., is offering any legal or other professional services. Since the law in many areas is complex and can change rapidly, this information may not apply to a given factual situation and can become outdated. Individuals desiring legal advice should consult legal counsel for up-to-date and fact-specific advice. Under no circumstances will the author or Hancock, Daniel & Johnson, P.C. be liable for any direct, indirect, or consequential damages resulting from the use of this material.