What’s behind dramatic differences in Medicare Advantage, ACA enrollments?

money-and-medicineMedicare Advantage enrollment is soaring, defying expectations after $150 billion in spending cuts over a decade that were part of the Affordable Care Act. The Congressional Budget Office expected about a 30 percent falloff – but enrollment has risen by 50 percent to more than 17 million people.

The ACA exchange enrollment is way under expectations. About 12.7 million people signed up this year – and not all will pay their premiums and stay enrolled. The CBO had forecast 21 million for this year.

The reasons for both are complex – but Robert Pear in The New York Times looked at enrollment from the perspective of insurers who are taking part in both programs – and making money in Medicare Advantage:

The different trajectories of the two programs are explained by many factors, including money, market size and politics. Insurers know the Medicare population, know the rules of the program and have found ways to manage care that improve the health of Medicare patients and the financial health of the companies. They know much less about their new marketplace customers, many of whom were previously uninsured, and Congress, still bitterly divided over the health law, has done little to stabilize it.

The Medicare market is bigger than those eligible for the exchanges, and it’s also growing more predictably. The insurers get about $10,000 per person each year, and the profit margins of well-run plans are in the 4 to 5 percent range, according to the Times report.

Industry analysts that Pear cited say insurers get $3,000 to $5,000 a year for each ACA customer. Overall, they are older and sicker than the plans expected, meaning “many insurers struggle to make a profit.” Some major insurers have publicly reported steep losses and have either curtailed marketing or threatened to pull out altogether.

“There is still a decent opportunity for insurance companies to make a profit in the Medicare Advantage program,” Pear quoted former Medicare chief actuary Rick Foster as saying. “The marketplace under the Affordable Care Act will calm down over time but may not ever be as stable and predictable as Medicare Advantage.”

The pending mergers among the big insurers are driven in large part over Medicare Advantage money-making opportunities, not the ACA. The ACA remains a lot more volatile, and it’s been harder for the health plans to know how to price their products. Traditionally insurance is what the industry calls “sticky” – people stick with their insurer year after year. That’s the case with Medicare Advantage. But there’s been more churn in the ACA exchanges. Someone in a Humana exchange plan this year may well switch to United HealthCare next year.

As Pear notes, Medicare Advantage had its rough years too. From 2000 to 2003, a lot of the players dropped out of many U.S. counties. But Congress – and the country – was less partisan than it is now (though it was plenty partisan!) Legislators came together to fix some of the program’s problems and raise rates, and it has thrived with bipartisan support.

“Obamacare,” in contrast, hasn’t exactly found a bipartisan sweet spot. In fact, Congressional Republicans have blocked certain payments to insurers, guaranteed in the health law, meant to smooth over some of the bumps and uncertainties of the first years.

“Insurers want to play in this new market,” Harvard med school health economist Michael Chernew told Pear, “But they are not completely sure what the rules of the game will be.”

If the 2017 elections bring in a concerted effort to dismantle or weaken key parts of the ACA, expect a lot more bumps. But it the election brings in some form of continuity – even if some changes are made – expect most insurers to stick it out as the market will likely settle down and grow. As former Medicare administrator Tom Scully was quoted as saying, “Most insurers will stick with it because they cannot afford to abandon this market.”

1 thought on “What’s behind dramatic differences in Medicare Advantage, ACA enrollments?

  1. Roxanne Nelson

    “The ACA exchange enrollment is way under expectations.”
    Well I can’t speak for all exchanges, but the one is my state is a joke. There are about 6 insurers participating, and it is the same plan offered by all. It varies only in the cost of premiums, the deductible, and if there is a limit on out of pocket spending if you go out of network. I lost my insurance because of the ACA, and the plans on the exchange–the rock bottom one–would required me to pay more than double the premium I had been paying, for a deductible of $7500. And be forced to have things I don’t want/need. Great plans! Instead I found an agent, and got a much cheaper plan without the ACA “requirements.” I can do without unlimited wellness visits, unless I want to go hang out at the doctor’s office every week, for example. The plan is for a healthy person like myself, without pre-existing conditions, but I have to sign up for it every year. This is my third year, and I hope that it doesn’t go away because of the ACA. So I am guessing that there are many people in my position, who took one look at the exchanges and found insurance elsewhere. Or simply couldn’t afford what was on the exchanges and would prefer to pay a penalty if need be. That’s part of the story of the exchanges which doesn’t get much publicity.

Leave a Reply