Medicare Advantage enrollment surges despite payment cuts

Enrollment in Medicare Advantage plans has risen considerably in the last five years, overcoming predictions that funding cuts would cripple the program and offering an attractive business opportunity for health insurers, according to the New York Times.

Medicare Advantage enrollment jumped from 11 million people in 2010 to 17 million in 2016 despite approximately $150 billion in cuts to the program over 10 years included in the Affordable Care Act. Last month, America's Health Insurance Plans (AHIP) began mobilizing beneficiaries to push back against a recent 2 percent cut to Medicare Advantage plans.

However, Medicare Advantage plans have consistently brought in profit margins of 4-5 percent, according to the Times, a stark contrast to marketplace plans that have struggled to gain traction. On average, the government pays $10,000 per Medicare beneficiary per year, compared to just $3,000 to $5,000 per year for beneficiaries younger than 65 who sign up for marketplace plans.

"Even with all the cutbacks in the Affordable Care Act, there is still a decent opportunity for insurance companies to make a profit in the Medicare Advantage program," Richard S. Foster, the former chief actuary of the Medicare program, told the Times. "The marketplace under the Affordable Care Act will calm down over time but may not ever be as stable and predictable as Medicare Advantage."

Economists say that private Medicare plans are simply more predictable than ACA marketplace plans in which insurers have seen significant churn and found it difficult to predict spending. Recently, Humana announced its ACA plan membership was expected to decline in 2016, but the insurer predicted a significant bump in Medicare Advantage plans.

Previous reports have also shown there is very little competition in Medicare Advantage markets, and there could be even less if the Aetna-Humana is finalized. Others have highlighted the significant potential for Medicare Advantage plan to accelerate the transition from volume-based payments to value-based payments.

To learn more:
- read the New York Times article

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