MAY
23, 2019 By Sanjay Saxena, Ashish Kaura, Daniel Gorlin, and Jon Kaplan
It’s a vast market—projected to reach more than $360 billion a
year by 2023—with attractive growth baked in. Below the surface, though, lie
difficult dynamics and increasingly tough competition. Medicare Advantage—the
insurance programs that private companies offer through Medicare—has
established itself as a hot market segment that shows no signs of cooling, and
lots of health care payers are eyeing it. But they should look carefully before
they leap. Large incumbents such as United Health, Humana, CVS Aetna, and
Anthem, along with powerful regional players such as WellCare, have built
strong defenses. New entrants must develop a compelling value case if they are
to gain a foothold, much less seize significant share. Here’s what companies
need to know to get into the market or increase their current share.
SIZE
AND GROWTH—AND FIERCE COMPETITION
The number of Medicare Advantage plans available per
eligible member has increased over the past four years at a rate of 8% per
year.
According to our analysis, Medicare Advantage enrollment will
increase at an annual rate of 4% to 6% from 2017 to 2023, and revenue will grow
at a rate of 7% to 9% annually. By 2023, available annual profit pools will
range from $11 billion to $13 billion, making Medicare Advantage the single
biggest driver of profit growth for health care payers.
Significant
tailwinds are propelling this growth, including an aging population,
rising penetration in comparison with fee-for-service plans (Medicare
Advantage is expected to reach 40% penetration by 2025), and a continued
favorable regulatory climate. Current government policies—including support
for strong rates, considerable latitude for private payers to add benefits
(such as food assistance, transportation assistance, and social support) beyond
core health services, changes in Medicare Part D plans, and initiatives from
Centers for Medicare & Medicaid Services (CMS) for increased
transparency—will add fuel to the engine.
Behind the growth, however, lies a fiercely competitive market.
The number of plans available per eligible member has increased over the past
four years at a rate of 8% per year, from 19 in 2016 to 24 in 2019. According
to Deft Research, switching rates have dropped from more than 20% for 2015 (and
for each of the three years before) to 11% for 2018 and 14% for the 2019 plan
year. And in many instances, consumers are simply moving from one plan to
another while keeping the same carrier, making the effective switching rate
even lower than the reported level. This combination of factors has made it
difficult for individual companies to accurately report consistent year-on-year
growth.
The big national players (including Anthem, CVS Aetna, Humana,
and United Health) have seized the largest share of the market. (See Exhibit
1.)
Despite the industry’s attractive macro conditions, new
entrants—be they venture-backed plans, provider-sponsored plans, or tech-based
provider transformations—have found Medicare Advantage a tough market to crack,
even with strong backing and deep pockets. We analyzed some 3,000 cases of new
market entrants, which we defined as new company offerings in new Medicare
service areas, over the past five years—and we found only about 100 instances
(3.3%) in which the payer achieved growth of 10,000 members or more. Even more
daunting, in only 12 cases (0.4%) did new entrants in a Medicare service area
grow from a starting point of zero members to 10,000 or more. (See Exhibit 2.)
Cracking the Medicare Advantage market has proved equally
challenging for existing health plans, such as regional Blue Cross Blue Shield
plans, which have often found it difficult to translate their historical
strength in employer-sponsored commercial insurance into success in Medicare
Advantage. Similarly, Medicaid plans, which have largely focused on the “duals”
population (typically, seniors who are also eligible for Medicaid), have found
it difficult to capture traditional Medicare-eligible seniors.
National
players are exploring avenues to differentiate themselves on attributes other
than price.
Even the national players face challenges in their efforts to
deliver consistent growth over time, and they are leveraging their scale for
price advantage, investing in plan value (making their benefits richer for
members), and offering more $0 premiums and Part B givebacks (through which
insurers actually put money back into members’ social security accounts). For
example, the newly merged CVS Aetna has devised a strategy to leverage its
retail footprint to reach more than 75% of all Medicare Advantage–eligible
members in the near term, and it has already instituted a product strategy that
uses a $0-premium local preferred provider organization to achieve share gains.
National players are also exploring avenues that may enable them to
differentiate themselves on attributes other than price, by innovating their
plan designs, investing in brand campaigns, expanding their networks of care
providers, and integrating clinical assets to maintain and grow share. For
example, United Health, which already has one of the largest provider networks,
is building local market depth by acquiring clinical assets, and it is using
advanced analytics to better understand its members and costs.
OPERATIONAL
EXCELLENCE IS THE PRICE OF ENTRY
To compete in Medicare Advantage, health plans must have
operating capabilities that can deliver superior processes and service,
maintain margins and price competitiveness, and fund differentiating characteristics.
For all players, this level of operational excellence depends
on four critical elements:
·
Robust Utilization and Care Management. The
traditional care management approach focuses on intervention at a point in
time. Payers need to step back and take a long-term view of patients’ health
needs, including social determinants of health, and apply predictive analytics
to anticipate care demands and, if possible, avoid adverse outcomes. For
example, Humana has developed robust predictive models and invested heavily in
home care assets (its investment in Kindred, which provides care for people
recovering from illness or injury, is one case in point) to be on the front
lines of care.
·
Efficient and Effective Network Design. To
achieve high-quality outcomes, payers must identify high-value providers and
use incentives and other means to direct care appropriately. Leading payers are
not only pursuing value-based contracts (including full-risk contracting with
primary-care providers) but also taking a more strategic approach to shaping
the primary-care network for members. Strategies range from owning or
partnering with primary-care facilities and physicians to investing in insight
engines designed to identify the highest-performing providers and develop
helpful data for primary-care physician to use in adapting their practice or referral
patterns.
·
Accurate Risk Stratification. Payers
need to conduct risk assessments in concert with providers, incorporating data
from external sources to achieve as full and accurate a view as possible
(consistent with privacy laws and regulations) of the member’s risk and needs.
Newer models incorporate self-learning technologies enabled by
machine learning algorithms that increase predictive accuracy
over time, and they connect the patient’s risk stratification with provider
treatment plans. Having best-in-class risk stratification capabilities enables
payers to address potential gaps in care for members and also to capture
important patient risk factors, thereby ensuring accurate scoring of the risk
adjustment factor and, where appropriate, additional payment revenue from CMS.
·
Improving Performance in the Context of
Medicare’s Stars Rating System. Most payers have
already invested heavily in robust analytics and a dedicated organization to
manage and predict Stars scores. Health plans should align their network design
and their Stars strategies to create the foundation for a high-quality provider
partner base. For example, co-designing incentives with provider partners can
help create alignment across the care continuum.
Payers need to recognize that Medicare Advantage requires a
fundamentally different operating model and set of capabilities than those they
have developed for their commercial group and individual lines of business.
While many of the competencies may seem similar and scalable, they have proved
not to be. Health plans that have tried to transfer existing care management,
network, and risk stratification capabilities as is, or with limited tailoring,
have struggled to effectively manage and profitably serve Medicare Advantage
members. As a result, many predominantly commercial plans—including a number of
Blues—have become trapped in a pattern of rapid growth, followed by pruning to
address mounting losses. Only a few such plans have been able to escape this
cycle.
Payers need to recognize that Medicare Advantage
requires a fundamentally different operating model and set of capabilities.
WINNING
REQUIRES DIFFERENTIATION
Besides depending on operational excellence, achieving long-term
growth through consumer differentiation requires investing in improvements in
three high-impact areas: tailored products and services, innovative care
delivery, and listening to members.
Tailored Products and Services. Conventional
consumer segmentation has not yielded strong positive results in Medicare
Advantage. Products have lost their distinctiveness, with too many me-too
attributes; they often overlap in benefits and vary only in price and network.
Payers need a better segmentation model—one rooted in an understanding of
seniors’ emotional and functional needs.
Consumers, including seniors, have learned from the likes of
Amazon, Netflix, and Apple to expect a high degree of personalization and
customization in the products and services they buy. To win in Medicare
Advantage, payers must develop a consumer-centric
plan design with offerings tailored to meet the needs of
subsegments within the patient community. BCG’s 2019 Medicare Advantage
Innovation consumer survey reveals a series of emotional and functional needs
that companies can use as the basis for product design that goes beyond
conventional segmentation. For example, the top three areas of emotional
reassurance that consumers seek when selecting a Medicare health plan are as
follows:
1.
Getting the care they need
2.
Being prepared for the unexpected
3.
Feeling free to live retirement well
With respect to a plan’s functional components, 49% of Medicare
Advantage–eligible consumers prioritize having access to all of the care they
may require with the best possible providers. Another 29% want to understand
all of their options, maintain control of their health care, and keep their
independence. These varying priorities offer health plans avenues for
differentiation that extend beyond benefits and network coverage alone.
Innovative Care Delivery. Baby Boomers have
the same high expectations for their senior years as for most of the rest of
their lives. In particular, they expect to continue to live on their own terms.
Payers can drive growth and improve overall care, consumer convenience, and
experience by integrating innovations that appeal to this generation of Medicare
consumers. These include incorporating high-touch, convenient, easy-to-schedule
primary-care models and providing in-home care management support for consumers
who prefer to age in place and maintain their daily routines. Some payers are
investing in in-home care and wellness programs designed to help people return
home more quickly after hospitalization or live more easily at home when
managing long-term illnesses or chronic conditions.
Listening to Members. Payers in general
receive low trust scores from consumers. To improve their members’ experience,
they need to increase their transparency and pay closer attention to the
qualities and attributes that Medicare buyers are looking for. BCG’s 2019
survey identifies the following functional product attributes (contributing to
a seamless end-to-end member experience) that respondents who are 60 to 70
years old frequently cite:
·
Online collateral information as part of the process for
choosing a Medicare Advantage plan (84%)
·
Full-coverage lump-sum premium payments (64%)
·
In-home (versus nursing home) care at affordable cost (62%)
·
A cash-back plan if annual health care costs fall below a
certain threshold (58%)
·
Ability to sign up online directly with insurance company (22%,
second only to “in person with an insurance broker,” at 26%)
Payers can also explore deepening customer relationships through
concierge-like models, whole-person approaches, lifestyle and wellness programs
and incentives, consumer-friendly tools that offer members transparency about
their care choices, and a customer service team supported by a technological
back end that the team can leverage to help members navigate the maze of the
health care system. Differentiation in service can help smart payers position
themselves as part of the answer, not part of the problem.
HOW
YOU PLAY DEPENDS ON WHERE YOU START
How each company—or type of company—should approach the Medicare
Advantage market depends in large part on its starting point. Large national
incumbents can use their scale, share, and expertise to protect share and make
new inroads. They can push the operational excellence and differentiation
levers described above to offer further-advantaged pricing that builds on their
strengths, but they should not lose sight of their other structural advantages.
They can invest in care delivery and other network assets on a national scale
and apply advanced analytics to reduce costs, curate networks, predict risks,
and offer timely interventions. They can also partner nationally with digital
companies to develop innovative user experiences.
Blue Cross Blue Shield plans can draw on their considerable
strengths, including long-standing relationships with members, robust
commercial books of business, established provider partnerships, and presence
in other government-sponsored business segments (such Medicare supplemental plans
and Medicaid). We recommend that they consider leveraging these attributes into
avenues of entry into and growth in the Medicare Advantage market. The
following opportunities seem especially promising:
·
Capturing a disproportionate share of age-ins by capitalizing on
the strength of their brand, commercial market position, and local provider
relationships
·
Creating new, transitional Medicare Advantage products for
employee and retiree subsegments
·
Expanding insight into network performance to create networks
tailored to seniors’ needs and priorities
·
Building more-affordable joint plans with provider partners
·
Launching new drug distribution channels
·
Expanding service to include Medicare Advantage–based rewards
and navigation
·
Converting Medicare supplemental members to Medicare Advantage
plans
·
Moving into Medicare special needs plans by leveraging Medicaid
expertise
Regional plans, which typically have less mature government
businesses than national carriers, should assess whether entering Medicare
Advantage makes sense as part of their overall business strategy. If it does,
they should probably focus their plans on operational excellence and
partnerships to build Medicare Advantage capabilities, as opposed to trying to
go it alone. Some regional players can leverage their local market positions
and existing provider relationships, especially with a Medicare preferred-provider
organization offering.
Regional plans should assess whether entering Medicare
Advantage makes sense as part of their overall business strategy.
Other, smaller plans—such as new analytics-driven entrants,
provider-sponsored plans, and pure-play Medicare Advantage plans—can bring
unique differentiating capabilities to the market, but they will need to focus
on delivering outsize value through an improved customer experience and network
curation because they probably cannot compete effectively on price and scale.
These entrants may also be able to take a page from disruptors in other
industries and leverage digital distribution to promote new marketplace buying
behaviors. In the auto retailing market, for example, one digital disruptor
created a million-user marketplace for purchasing and financing vehicles online
by introducing a mobile app that reduced buying time from more than five hours
to just ten minutes.
There’s plenty to attract payers to Medicare Advantage. But
playing the game at a winning level requires a defined strategy that is
consistent with the organization’s core competencies, a substantial degree of
commitment—and perhaps some patience as well. In this competitive arena,
management teams must assess their opportunities with eyes wide open.
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