Medicare Advantage and Fear of the Unknown
By Alex GomezPublished March 23, 2016Medicare Advantage is a health plan that is offered through a private company that contracts with Medicare. The plan, referred to as "Medicare Part C" works to provide citizens who are ages sixty-five and over with more flexibility in their health insurance options, such as included prescription drug coverage and caps to out-of-pocket spending.
Seniors are drawn to this private partnership because the federal government partially subsidizes these plans. However, since 2010, the government has been steadily decreasing the size of the payments they make, as a cost-cutting measure to support the Affordable Care Act. All in all, the law will see a total of $150 billion in cuts by 2020. It was largely predicted that these cuts would have monumental effects. Insurers initially reacted by dropping policies or reducing the services and networks provided to existing policies, in an effort to maintain profitability. Increased premiums, co-payments, and coinsurance were also forecasted. In fact, the Congressional Budget Office predicted a 30% decrease in total enrollment.
Six years later, new statistics have surfaced that completely contrast the predictions of government officials and industry experts.
It has recently been revealed that there are more than 17 million people now enrolled in Medicare Advantage plans, up from just under 11 million people in 2010. These 17 million represent about one-third of all Medicare recipients. Insurance companies are eager to sign up new seniors, as they have the knowledge and experience necessary to manage the services necessary while maintain profitability. Insurers receive an average of $10,000 for each Medicare patient they sign up and this market proves to be largely profitable.
In sharp contrast, many insurers are apprehensive about enrolling people under 65 through public marketplaces. They have much less confidence in managing this population, as the people enrolling are generally not-profitable, due to unpredictability in providing care and receiving payments. In fact, many major insurers are currently in the process of reducing or completely eliminating the commissions given to insurance agents who enroll people in public marketplace plans. On average, an insurer can receive $3,000 to $5,000 a year in revenue from someone signing up in one of these plans. This number is simply not high enough to offset the expenses associated with managing these plans. This leaves no incentive for a private company to incentivize these plans, as they often lead to losses.
The importance of this difference is increasingly salient as it highlights the differences between public and private agendas. The federal government, through the Affordable Care Act, has put tremendous effort into increasing enrollment and providing healthcare for all. However, the people the act seeks to serve are highly unpredictable. This causes a form of adverse selection, in which insurance firms lose money by servicing those in need.
Through changes in marketing and sales incentives, insurance companies have made it clear that they would rather have stability through maintaining its old demographic of customers. There is no doubt that private and public interests are divergent in the healthcare market. A private company makes no gain from public goodwill. With such conflicting interest, is it possible to strike a balance? If those signing up for insurance through public marketplaces are truly unprofitable, private companies have little incentive to provide policies. And large insurers, such as UnitedHealth are being transparent with where their interests lie, telling investors that they are considering withdrawing from the Affordable Care Act marketplace in the coming year. We can only wait and see if insurers follow-through with these considerations. But in the meantime, it is up to lawmakers to find a solution, as the current plan of action is far from complete.