Surging enrollment in Medicare Advantage moves patients out of Medicare Part B and thus reduces the ability of regional clinical labs to have access to these Medicare beneficiaries
Smaller clinical laboratories and pathology group practices are facing an inauspicious trend. It is the fast growth of enrollment in Medicare Advantage plans that has reached record high numbers each year since 2010.
This is not a positive development because it moves Medicare Part B patients out of the fee-for-service program and shifts them into Medicare Advantage plans. These plans tend to sign contracts with the national laboratory companies, such as Quest Diagnostics Incorporated (NYSE: DGX) and Laboratory Corporation of America (NYSE: LH) because of their lower lab test prices while excluding most local medical laboratories and pathology groups from their provider networks. The net effect of this trend is that local labs lose access to those patients who were formerly in the Medicare Part B program, but are now enrolled in Medicare Advantage.
Enrollment Growth Shifts Market for Clinical Laboratory Tests
Moreover, the enrollment numbers are substantial. The cumulative increase in Medicare Advantage beneficiaries exceeds 40% since enactment of the Patient Protection and Affordable Care Act (ACA), noted a Modern Healthcare analysis of the latest CMS data. It shows Advantage Plan enrollment climbing 8.5% during the 12 months of February 2014 to February 2015.
CMS data shows that 17.3 million beneficiaries are now in Medicare Advantage. By comparison, as of 2014, there were a total of 45 million seniors enrolled in all forms of Medicare. This means that 38.4% of all Medicare beneficiaries are now covered by Medicare Advantage and predictions are that this percentage will continue to increase.
Large insurers such as UnitedHealthcare, Humana, Kaiser Permanente, and Aetna continue to gobble up the lion’s share of the Medicare Advantage market. These four insurers account for more than 9.1 million Advantage members, representing a 53% share of this Medicare program.
Growth of Medicare Advantage Plans Not Fueled by New Beneficiaries
Another notable fact about the skyrocketing enrollment numbers in Medicare Advantage plans is that it is made of up seniors already participating in Medicare Part B. A January 2015 Health Affairs study, showed the growth in Medicare Advantage enrollees is being fueled by seniors switching out of the traditional Medicare program in their late 60s and not by baby boomer seniors choosing Medicare Advantage plans when they first enter the Medicare system at age 65.
Medicare-eligible seniors who switch from the traditional Medicare program to a private Medicare Advantage plan often receive additional coverage such as vision benefits. However, the trade-off is that these seniors must receive care from network providers, hospitals, and suppliers to avoid higher out-of-pocket costs.
“The prevailing thought was that baby boomers were enrolling in Medicare Advantage plans at a higher rate because they were more familiar with managed care and it was what they experienced in employer plans,” observed Gretchen Jacobson, Associate Director of the Program on Medicare Policy at the Kaiser Family Foundation and lead author of the study, in a Kaiser Health News article.
Researchers tracking Medicare claims data between 2006 and 2011 determined that, for each year, more than half of Medicare Advantage enrollees transitioned from the traditional Medicare program. Those switching from traditional Medicare to Medicare Advantage were in their mid-to-late 60s, which Jacobson says could reflect a willingness among younger, healthier seniors to accept the restricted provider networks of Medicare Advantage plans as a trade-off for having extra benefits.
Enrollment Increase in Medicare Advantage Not What Government Expected
The ongoing growth in Medicare Advantage enrollment goes against what was expected when Congress passed the ACA. Many industry experts anticipated a decrease in Medicare Advantage enrollments due to anticipated cuts in the federal government’s payments to the plans. According to the CMS, average premiums today are lower than before the ACA went into effect, dropping 6% between 2010 and 2015.
CMS has announced that 2016 payments to insurers that offer private Medicare plans will be increasing, with policy changes on plan payments resulting in 4.2% effective growth rate for 2016. The agency estimates insurers will see a 3.25% increase in their overall revenue, which the Wall Street Journal (WSJ) reports could allow insurers to improve plan benefits and further lower premium costs.
“It should mean nice growth for Medicare Advantage into 2016,” Leerink Analyst Ana Gupte, Ph.D. told the WSJ.
Medical Labs and Pathology Groups Should Develop Added-Value Services
The sustained growth of enrollment in Medicare Advantage plans is a strategic shift in healthcare with a direct impact on the market for clinical laboratory testing. For this reason, local medical laboratories and pathology groups that want to retain access to seniors enrolled in Medicare Advantage plans should be developing strategies to deliver more value to the insurers operating these health plans.
—Andrea Downing Peck