Starting in 2019, a federal rule change permitted Medicare Advantage plans to offer other perks like transportation and meal delivery. The goal is to address so-called social determinants of health, the many non-medical aspects of people’s lives that affect their well-being. Plans will offer a greater variety of those benefits in 2020.
Some Cigna plans in Texas will pay for air conditioners for the first time next year. Anthem will offer pest-control services, because vermin can affect chronic health conditions such as asthma. Carriers are also testing benefits like adult day care; home safety improvements, like grab bars, to prevent falls; and in-home help for people who need assistance bathing or dressing.
“We actually find a lot of beneficiaries are living in environments that really need support and help,” said Martin Esquivel, vice president of Medicare product management at Anthem.
Medicare doesn’t provide those things in its traditional fee-for-service program, partly because of the risk of inappropriate payments or fraud. In Medicare Advantage, the government’s payment to plans is limited, so that risk is managed by the plans.
The growth of Medicare Advantage shows demand for private managed-care plans exists even when seniors have a purely public option. “No one’s forcing them to do this,” said Dan Mendelson, founder of consultant Avalere Health and a partner at private equity firm Welsh Carson Anderson & Stowe. Seniors are increasingly comfortable giving up some choice of doctors in exchange for Medicare Advantage’s perks, he said. “It’s the choice that makes it really remarkable, that seniors are choosing this.”
While two-thirds of Medicare enrollees choose to stick with the original program, that share is declining. Mendelson said Medicare Advantage enrollment has grown by 8% annually in recent years. At that pace, more than half of Medicare members will be in private plans by 2025, he estimates.
Many people can get Medicare Advantage for no additional premium beyond what they pay for traditional Medicare. The average monthly premium for Medicare Advantage is $23 in 2020, down from $26.87 the prior year, according to the Centers for Medicare and Medicaid Services. It’s at the lowest level since 2007.
Plans have historically been paid generously. A decade ago, Medicare paid private plans 14% more than it would have spent for the same beneficiaries in the traditional program, according to the Medicare Payment Advisory Commission, known as MedPAC, which counsels Congress on Medicare policy. That helped finance additional benefits that enrollees found attractive, but it raised the program’s costs and put little pressure on plans to deliver more efficient care. The 2010 Affordable Care Act lowered those payments. They’re now about 1% above traditional Medicare payments, according to MedPAC.
People who choose to enroll in Medicare Advantage plans also typically have lower health spending before they enroll, compared with similar people in traditional Medicare, according to an analysis by the Kaiser Family Foundation. That means the way payments are set “may systematically overestimate expected costs of Medicare Advantage enrollees,” the Kaiser researchers wrote. Plans have been also faulted by government watchdogs for improperly denying care.
Medicare Advantage plans pay about 86% of their premium revenue out in medical claims, a similar proportion to other health insurance products, according to a separate Kaiser Family Foundation report. But the opportunity to profit is higher. Partly because Medicare beneficiaries use more medical care than younger people, there’s more money at stake for each member. Gross margins in Medicare Advantage – the difference between premiums collected and claims paid, before counting administrative costs – are about $1,600 per enrollee, roughly double the value in commercial plans, according to Kaiser’s analysis.