There are various kinds of Medicare Advantage products, also known as plan types, that health plans offer to seniors based on their ability and willingness to spend. Each plan type has a different network design, which can impact how managed and coordinated a patient’s care is.

The massive growth in MA enrollment over the past decade has generated a lot of buzz around whether that growth will accelerate the use of value-based care arrangements. This has created an imperative to better understand certain components of MA, particularly the different plan types.

OVERVIEW OF MEDICARE ADVANTAGE

Medicare Advantage, also known as Medicare Part C, is a private insurance plan available for Americans who already qualify for Medicare. CMS contracts with private payers to provide the same benefits as Medicare Part A (hospitalization) and Medicare Part B (doctor visits), though these plans often cover Medicare Part D (prescription drugs) as well.

The private payer receives a specific amount of money from the federal government for each member in their plan. This is based on CMS’ assessment of what the cost of providing care to each of their members will be for the next year through a process called ‘”risk adjustment,” as well as by county benchmarks and the plan’s quality rating.

Health maintenance organizations (HMOs)

HMO plan design creates a network of participating providers and often use tools like selective contracting and utilization management to coordinate care and control service use. HMO plans generally won't cover out-of-network care except in an emergency. They can also choose individual counties to serve and can vary their premiums and benefits across counties. This form of network design is known as “coordinated care plans” (CCPs).

Preferred provider organizations (PPOs)

PPO plan design is also based around a specific provider network. While PPO plans encourage their members to use their preferred network of healthcare providers, members can use out‑of‑network providers for covered services at a higher cost (emergency and urgent care are always covered). There are two types of PPO plans: local and regional. A local PPO plan has a small network of providers serving one or more counties, or partial counties. A regional PPO serves a single state or multiple states and has a large network of providers to better meet the needs of members in rural areas. PPOs are also considered CCPs.

HMO Point-of-Service (HMO-POS)

These plans are less common HMO-type plans that may allow members to get some services out-of-network for a higher copayment or coinsurance. Members must follow the plan rules, such as getting prior approval for certain services when required. This type of HMO plan offers a middle ground between PPO and HMO style plans.

Medicare private fee-for-service (PFFS)

Medicare PFFS plans are offered only in a small fraction of counties. Depending on the location, these plans may or may not use provider networks. The plan determines how much it will pay physicians, hospitals, and other healthcare providers, as well as how much members must pay when they get care. PFFS plans are not the same as traditional Medicare or Medigap plans.

Special needs plans (SNPs)

Medicare Advantage special needs plans are designed to provide care to individuals with special needs. Therefore, they limit membership to individuals who are dually eligible for Medicare and Medicaid, are institutionalized, or have certain chronic conditions (e.g., heart disease, diabetes, COPD, HIV-AIDS, etc.). SNPs are a specialized type of MA plan that requires an explicit care coordination plan for each member and can offer benefits tailored to specific healthcare challenges.

Employer group

Employer MA plans are available only to Medicare beneficiaries who are members of employer or union groups that contract with a plan. An employer or union will contract with a health plan, but Medicare pays the insurer a fixed amount per enrollee to provide benefits covered by Medicare. These plans often provide benefits like vision, dental, and hearing coverage, which are not included with traditional Medicare Parts A and B. These plans advertise richer benefits and lower costs than other plans since employers and unions often offer a defined-contribution plan or subsidy.

In 2023, Medicare Advantage enrollment surpassed traditional Medicare enrollment. However, the overall size of the MA population does not, on its own, help us understand the impact on how seniors are receiving care in this country. Instead, we need to take a deeper look at the relative growth rates of the different MA plan types, which have created very different environments within which healthcare value innovation can take place.

Our analysis shows that the largest year-to-year growth of MA plan type in the last five years has been in PPO plans, where coordinating care and controlling healthcare spending per member is more challenging than in SNP and HMO plans. VBC has proven to be a powerful tool to help produce better healthcare value for seniors, but its ability to do that is greatly enabled by more managed care environments like SNP and HMOs. The growth in PPO enrollment could blunt the ability of providers and plans to improve healthcare value through VBC, at a time when most of the senior population is transitioning to the period of their most complex and expensive care needs. As the graphic below illustrates, we will soon be entering a new era when, for the first time in U.S. history, most seniors in this country will be 75 years and older.

Key things to remember:
 

1. There are nuances when we talk about the growth of Medicare Advantage. Knowing more about different plan types will lead to more constructive conversations with other leaders around MA growth.
2. Growth in MA does not inherently lead to more value-based care. The growth of PPO plans could have a negative impact on the future of value-based care.

Health plans

The capacity of MA plans to manage and coordinate the care of their members is going to become even more clinically and financially important over the coming decade as the baby boomer generation becomes older, on average, and their care needs become more complex. The significant growth in MA PPO plans is contributing to greater enrollment numbers and revenue for MA plans. However, while plans might be able to attract more members with PPO now, this network design could become increasingly challenging in the future. If plans can’t achieve total cost of care savings through multi-specialist control, they will need to think creatively about how to constrain networks. There might even be an opportunity to innovate within existing MA plan types to balance allowing consumers to choose their providers while also containing consumer’s costs, like “high touch” PPO plans and HMO-POS.

Additionally, plans shouldn’t discount the growth in SNPs, which counted for two-thirds of MA growth in 2022. Not only has this been a robust area of growth for organizations to use VBC to create better healthcare value for seniors, but the types of conditions SNPs target will become increasingly prevalent as baby boomers age.

Providers

There will be increasing pressure on providers to shift disconnected specialist management into comprehensive care management to control MA spend. This will require tracking which patients are in which plan types to know who to provide extra wraparound supports to, as well as making sure they are collaborating with the plan to build out preferred specialists. The growth of MA PPO plans means that providers may also need to address their patient referral leakage strategies. Leakage contributes to uncoordinated and inefficient care, and most healthcare organizations don’t realize the amount of revenue that is lost due to leakage.