Max Hakanson (00:00):
Medicare Advantage now makes up more than half of our senior population. So it's this doubling down, this compounding effect of we're dealing with more MA. At the same time, it's getting harder to work with Medicare Advantage.

Rae Woods (00:13):
From Advisory Board, we're bringing you a Radio Advisory, your weekly download on how to untangle health care's most pressing challenges. I'm Rae Woods.

Abby Burns (00:22):
I'm Abby Burns.

Rae Woods (00:24):
Abby, I want to admit to you, just last week I was actually catching up with a friend of mine, a friend who works in health care, and as friends and nerds do, we were talking about the business that we work in. We were talking about the future of healthcare. And off the cuff, I said something like, "Yeah. Right now, plans are really struggling because of Medicare Advantage." And he literally interrupted me and said, "Wait, what, I thought plans were making money on MA?"

Abby Burns (00:50):
I get why he might be confused, because a lot has admittedly been changing in the MA market, and the headlines around MA have been pretty dramatic. It's all been about payers exiting Medicare Advantage markets, providers terminating their MA contracts. So what a lot of people, like your friend, previously thought of as a cash cow is actually on pretty unstable footing right now.

Rae Woods (01:13):
Exactly.

Abby Burns (01:15):
If your friend has these questions, I'd imagine our listeners do too, and I want to help our listeners make sense of the big, maybe even radical shifts in the Medicare Advantage market. To do that, I think we have to talk to Advisory Board's health plan experts, Max Hakanson and Chelsea Needham.

Rae Woods (01:32):
Let's do it. Max, Chelsea, welcome to Radio Advisory. Hi guys.

Max Hakanson (01:37):
Hi there.

Chelsea Needham (01:38):
Hey.

Rae Woods (01:42):
I think we're having this conversation at the right time, 'cause if my calendar in my head is right, Medicare open enrollment just started. I think it just started last week and it's going to go through early December, meaning as we speak, millions of seniors and caregivers are looking into plans for themselves, for their loved ones.

Abby Burns (01:59):
It also, Rae, means that plans themselves are sort of gearing up to see how their numbers are going to shake out, and providers are waiting to see how their coverage mix is going to look.

Rae Woods (02:09):
So that means everybody is thinking about payer dynamics, every stakeholder, friends catching up over coffee, all thinking about payer dynamics, and Medicare Advantage specifically. And I have to believe that more change is coming. Chelsea, give us the pulse check of today. What is the state of Medicare Advantage right now?

Chelsea Needham (02:29):
I would describe the Medicare Advantage market as volatile, but before we dive into why we would even call the market volatile, I think it's important for people to understand what Medicare Advantage actually is and what's been happening over the past few years.

Chelsea Needham (02:44):
So, Medicare Advantage is actually an alternative to original Medicare and it is authored by private insurance companies. So typically, these health plans are providing all the coverage benefits that you would have under original Medicare, in addition to coverage for pharmacy benefits, dental benefits, vision, hearing, and many other things such as wellness programs and organized care management programs for people with chronic conditions.

Chelsea Needham (03:09):
I think throughout the years, we have just seen the Medicare Advantage market experience significant growth. As of last year, we've seen that nearly half of people who are eligible for Medicare are actually enrolled in Medicare Advantage plans.

Rae Woods (03:27):
I think we saw that [inaudible 00:03:28] last year. Right? It's more than 50% of seniors are saying, "I want those wellness programs, I want SilverSneakers." I want the choice that comes with Medicare Advantage.

Chelsea Needham (03:37):
Correct. So, we've seen that shift. If you were to go back 20 years ago, you're looking at only 10 to 12% of people enrolled in a Medicare Advantage plan, and now we're surpassed the 50% mark. But also, there are some contributing factors to that, right? So we know that we have an aging population, for instance, we know that the baby boomers are growing older and they're aging into Medicare Advantage. So that has driven a lot of growth into the Medicare Advantage market, and has also increased just the opportunity for health plans to be profitable, giving the increasing consumer base that they have because of that population.

Chelsea Needham (04:13):
We've also seen that, again, as you said, Rae, that people love Medicare Advantage because of the convenience of just having a single plan to cover a lot of their medical services, but also their prescription drugs and just tons of different supplemental benefits that Medicare Advantage plans bring to the table. So I think given all of that context, it is important to note that the post on Medicare Advantage is changing. And so that is why I use the word volatile, because I know that many of us have seen and said for a long time that the market is too good to be true. But I think we are now at a point where we can say that the market is shifting.

Abby Burns (04:51):
And it does feel meaningfully different from just a few years ago, like you described, kind of seemed like Medicare Advantage could sort of do no wrong. What changed?

Chelsea Needham (05:03):
The biggest changes, I think, lie within how Medicare Advantage health plans have to now operate, and a lot of that stems from what we're seeing from CMS, so the Centers for Medicare & Medicaid Services. So they are focused on just managing the Medicare Advantage market more tightly. They are focused on containing costs, running in spend, and improving overall quality. And that is just seen through various mechanisms, right? We're seeing rate cuts, we're seeing changes to risk adjustment, we're seeing changes to star ratings, and we've even seen just large decreases in reimbursement rates or base payments to health plans. And we're even expecting, still, decreases into 2025, there is a new expected rate decrease.

Max Hakanson (05:50):
And Chelsea, at the same time that they're facing those pressures on their revenues, they're also seeing their expenses go up up. We're seeing utilization rebound post-pandemic, so their MLRs are increasing, that is essentially their profitability. So at the same time their revenues are going down, they're also feeling pressure on the cost side.

Rae Woods (06:11):
Yeah, kind of feeling squeezed from both sides?

Max Hakanson (06:12):
Exactly.

Rae Woods (06:14):
So from the health plan perspective, they're getting burned at both ends. Maybe we had a little bit of a signal that this was going to come. But my understanding is, it's really in the last couple of years that the screws have been tightened so much from CMS, that all of a sudden, we've changed our perspective or the health plans have had to change their perspective from, "Wow, Medicare Advantages this huge growth opportunity for me," to, "Suddenly, this is a drain of my business." Is that right?

Chelsea Needham (06:38):
Yes. I think it's safe to say that just over the last few years, all of these things been thrown into the bucket from those different angles. You can begin to see how it's becoming harder to navigate the Medicare Advantage market.

Max Hakanson (06:51):
There's always been some debate about whether CMS was overpaying MA plans, discussion around overcoding or maybe making the population look sicker than they really were. But the rate cuts and risk adjustment came faster than a lot of us were expecting, and I think it really caught the industry off guard with how drastic they have been.

Rae Woods (07:11):
And it's those drastic rate cuts on top of other changes. Tell us what's happening with star ratings.

Chelsea Needham (07:19):
Yeah., So what's changing in star ratings is simply just the criteria. CMS is changing how certain things are being weighed across the board, and so that has really impacted the star rating distribution that we've seen at health plans. So, even last year, we had only about 30 or so five-star plans, whereas two years ago we had over 70 five-star plans, so it's getting harder for health plans to achieve five stars. And so we've also, at the same time of seeing a decrease in five-star plans, we've also seen an increase in 2.5-star plans. So we're seeing an increase in lower ratings and a decrease in higher ratings from the plan side.

Abby Burns (07:58):
And just to put a fine point on that, Chelsea, that has very real financial implications, right? So I think if I have my numbers right, in 2024, health plans in aggregate made a billion dollars less in bonuses from star ratings compared to 2023. That's a lot of money.

Rae Woods (08:15):
It's a lot of money, and there's all the changes that were going to inevitably happen with the population. Max, I think you've told us before, 10,000 people aging into the Medicare population every day. It's that people aren't just turning 65, they're turning 75, they're turning 85, they're getting older, sicker, we've got this silver tsunami with higher utilization.

Max Hakanson (08:36):
Absolutely.

Rae Woods (08:38):
So what ripple effects does this have on health plans?

Max Hakanson (08:42):
The most dramatic thing we're seeing is market exits, and really, there are two flavors of this. We're seeing some players completely exit the Medicare Advantage space altogether. Those are plans like Blue KC and Premera. And then we have some plans exiting specific counties. So think of Humana and Aetna. Those are both plans that have announced significant county reductions.

Abby Burns (09:08):
You said that was on the most dramatic end. What about on the less dramatic end?

Max Hakanson (09:13):
Some of the other tools they are utilizing, they're always going to try cost sharing, so shifting medical and pharmacy benefit design to either increase copays or deductibles. But the thing that's really interesting this year, and we're likely to see it, is the reduction in supplemental benefits. We've known supplemental benefits have grown rapidly over the last decade in Medicare Advantage. This is an area we really expect a reduction in to try and fix that cost picture, because we know they really need to prioritize margin over membership. It's no longer just growth at all costs. It's now sustainable growth is the focus.

Abby Burns (10:58):
Max, I'm having deja vu. I feel like I'm back in the conversations we've been having about health systems for the past couple of weeks, because that no longer growth at all costs, really about sustainability, is the exact same message that we are hearing from and making to health systems.

Abby Burns (11:14):
So I actually want to use this opportunity to turn and talk about what the ripple effects are of the dynamics that we've been talking about on health systems. And the way I think about it, the big story kind of similar to in the plan side of things, really feels like it's around contract terminations, health systems actually walking away from working with MA plans. Help me understand that, because I have to say, in an industry that prioritizes stability, this feels like a pretty big deal.

Max Hakanson (11:45):
It absolutely is a big deal. When I go to conferences, I regularly hear people say, "Nothing in healthcare changes." But if you told 20 years ago that half of Medicare would be privatized these days, no one would believe you.

Rae Woods (11:58):
Yep. Hell yeah. There's no way that anyone would've believed that. And yet, it seems like we're willing to do quite a bit of change right now, quite a bit of turmoil, as Abby suggested, which is perhaps exactly why the word we're using to describe dynamics today is volatile.

Max Hakanson (12:14):
Yeah, and so we're seeing providers rethink their relationship with Medicare Advantage plans. Historically, they've contracted with most of the plans in their region, could be 8 plans, 10 plans, 12 plans, but facing those pressures we've talked about, more prior auth, higher denials, they are starting to change their relationship. We're seeing contract terminations, so not working with one plan or more. That's one side of the equation, and it's getting a lot of attention. It's very newsy when a health system and a health plan can't reach an agreement and go out of network.

Max Hakanson (12:50):
I think the other side of the equation that is not getting enough attention is potential partnership opportunities. How can they work together to better manage patients? So, while the contract terminations are the thing getting a lot of attention right now, and rightfully so, we think the future of Medicare Advantage is going to involve a lot more tighter relationships between the providers and the Medicare Advantage plans they choose to work with, a lot more coordination, strengthening complex care management, segmenting primary care, better infrastructure, and improving data analytics. Basically, they need to figure out, "How can we start working together and stop working against each other?'

Abby Burns (13:34):
And I think, Max, correct me if I'm wrong, your team has been doing research on exactly what this can look like across this year. Right?

Max Hakanson (13:42):
Absolutely. We have research on our website on what plans are looking for in an ideal provider partner, and then vice versa, what those providers are looking for in a health plan partner. So we have resources on that.

Abby Burns (13:54):
We'll put all of that in the show notes.

Rae Woods (13:56):
If I'm hearing you correctly, max, though, it seems to me that the conversation around Medicare Advantage has actually become a conversation not just about payer dynamics, but one that is squarely about providers as well. Right? There's this administrative burden that's been bubbling under the surface for quite some time. Now, it's officially boiling over with providers saying, "This is too much. I want to cut some of these contracts." Or maybe if they're not being so aggressive in their response, they're in general realizing that they have more agency when it comes to MA. Is that right?

Max Hakanson (14:30):
Yeah, absolutely.

Rae Woods (14:32):
How far are they going to take that agency? Do we expect that dropping MA plans is going to become more and more common across providers?

Max Hakanson (14:41):
I think we're already seeing this trend happen, Rae. 20% or so of providers dropped at least one Medicare Advantage plan last year, and over 60% said they were considering or going to do so this year. So that trend is already happening.

Chelsea Needham (14:55):
Yeah. And just to chime in here, that is not going to be everyone in the Medicare Advantage market, right? That's going to be a solution that some providers and some health systems choose, but there are other options.

Rae Woods (15:07):
It's a good reminder to us that there are an ungodly number of Medicare Advantage plans out there, right? So even if a health plan is dropping several, that doesn't mean there's no longer MA plan options for their patients.

Abby Burns (15:21):
This is actually a good transition point, Rae, because at this point, we've talked about plans, we've talked about providers. I'm left thinking about a group that we really haven't touched on as much today. We know that there are about 33 million seniors enrolled in Medicare Advantage plans. That number is going to continue to grow. How do the dynamics that we've been talking about today affect them?

Chelsea Needham (15:46):
It's not easy to be caught between your provider and your health plan, right? For example, if a provider drops a member-specific health plan, then that member is caught between either having to find a new doctor or potentially change plans to be able to see that doctor.

Max Hakanson (16:03):
While seniors may be caught in the middle, there are a lot of other options for them. The average senior in 2024 had the choice of 43 different Medicare Advantage plans.

Abby Burns (16:13):
43, as in when they're looking at, Rae mentioned at the beginning, it's open enrollment right now? When I call my grandmother to help her sign up for insurance, I have to wade through 43 plans. Is that what you're telling me?

Max Hakanson (16:24):
Yeah. And we know that is not feasible. The average senior cannot compare 43 different Medicare Advantage plans. So, there are an abundance of options, but maybe too many options.

Rae Woods (16:38):
I want to come back to how we started off this conversation, and the word that Chelsea used to describe the state of Medicare Advantage today, which was volatile. If I think about the story of Medicare Advantage, the first several chapters were all about growth. And we were seeing a lot of focus on more members, more plans, more seniors, more money.

Rae Woods (17:03):
It's clear that we are at a turning point, where the point in time that we're at right now is actually more regulatory changes, tighter squeezes, demographic shifts. My question is, what is the next chapter of Medicare Advantage going to look like?

Max Hakanson (17:18):
Rae, it's very hard to predict what CMS is going to do next, and we really need to watch and see what they do to really determine the future of MA. But we know MA is not going anywhere. It is here to stay. And so for those insurers operating in this space, it's going to be harder. It's not going to be the cash cow it once was, but there's still money to be made here. There's still a lot of lives to be covered here. It's just going to be harder. Plans need to get better at managing total cost of care, coordinating with providers, and really re-examining their expense picture, which means potentially things like cutting supplemental benefits.

Chelsea Needham (17:58):
Yeah. And I think there's going to continue to be a focus on quality and costs, and so that's going to require health plans and other stakeholders to continue to be calculated in a literal and figurative sense. So, they have to remain nimble, innovative, and collaborative if the ultimate ambition is going to be to improve healthcare and healthcare quality.

Abby Burns (18:22):
Well, Max, Chelsea, thank you for coming on Radio Advisory.

Chelsea Needham (18:26):
Thank you.

Max Hakanson (18:27):
Thank you.

Rae Woods (18:33):
What I took away, is that the MA market is changing a lot. It's very different today than it was 2 or certainly 5 years ago, and it's going to look different 2 and 5 and 10 years in the future.

Abby Burns (18:46):
Yeah. When Max and Chelsea started talking about the shift from rampant growth, which we've absolutely seen in MA in the past five years, towards sustainability, it just struck me how the conversations that we have about how providers are navigating this moment and how plans are navigating this moment actually has a lot in common.

Rae Woods (19:06):
Which is important, because Max and Chelsea said that in this moment in time, plans and providers are often in conflict. But it sounds like we're realizing that at its core, they have a very similar challenge to weather together, which is moving from growth towards sustainability.

Abby Burns (19:24):
'Cause remember, as always, we're here to help.

Rae Woods (19:48):
If you like Radio Advisory, please share it with your networks, subscribe wherever you get your podcasts and leave a rating and a review. Radio Advisory is a production of Advisory Board. This episode was produced by me, Rae Woods, as well as Abby Burns, Chloe Bakst and Atticus Raasch. The episode was edited by Katy Anderson, with technical support provided by Dan Tyag, Chris Phelps, and Joe Shrum. Additional support was provided by Leanne Elston and Erin Collins. We'll see you next week.