Medicare Advantage driving earnings, profits for insurers

“There is a great deal of controversy and uncertainty regarding profits in the Medicare Advantage (MA) program,” Richard G. Frank and Conrad Milhaupt write for the Brookings Institution. “Interest in these issues is growing as the share of beneficiaries grows. The Medicare Payment Advisory Commission, or MedPAC, recently reported that MA enrollment grew 10% from July 2020 to July 2021. This means MA accounted for 46% of all Medicare beneficiaries in 2021, with payments to MA plans totaling $350 billion. A recent visible exchange of facts and interpretations of some data by Berwick and Gilfillan, Halvorson,  Crane, and Ginsburg and Lieberman has highlighted how incomplete existing data are and how that limits the ability to arrive at conclusions about market performance. The debate is focused on whether MA plans are “overpaid” and the degree to which current regulatory arrangements are likely to constrain potential overpayments. The concern is that MedPAC reports that MA plans continue to be paid 104% of traditional Medicare Fee for Service (FFS) costs, and payment benchmarks remain at 108% of traditional Medicare FFS spending. Since 2010 and the enactment of the Affordable Care Act (ACA), Medicare Part C or MA policy has aimed to improve alignment of plan costs and payments, in part by requiring that health plans in MA attain a Medical Loss Ratio (the share of premiums spent on medical care) of 0.85.[1] The ACA also reduced some payments to MA plans. Together these policy changes sought to reduce overpayments that had been previously documented. At the time, the Congressional Budget Office (CBO) and the Medicare actuary predicted large scale exit from MA markets. The actual experience has been quite different with strong market entry, and Security Exchange Commission (SEC) filings and earnings reports suggest that MA was the source of earnings growth for several large insurers (e.g., UnitedHealthcare, Humana). MA is now projected to enroll 50% of Medicare beneficiaries by 2025 or sooner. The MA payment structure allows for several ways for plans to earn profits. MA plans are paid based on annual premium bids made against a market benchmark that is set administratively by the Centers for Medicare and Medicaid Services (CMS) under statutory authority and depends in part on the quality rating achieved by a plan. That bid serves to establish plan revenues. The difference between those revenues and incurred costs are plan profits.” Richard G. Frank and Conrad Milhaupt, “Profits, medical loss ratios, and the ownership structure of Medicare Advantage plans,” Brookings.