The Chartis Group’s Herro Looks at the Complexity of the Medicare Advantage Landscape Now

April 13, 2021
Nick Herro, of The Chartis Group, the Chicago-based healthcare consulting firm, shares his perspectives on the current state of the Medicare Advantage market—including its challenges and opportunities for providers

On March 29, Nick Herro and Julianna Wokurka of The Chartis Group, the Chicago-based healthcare consulting firm, published a new report, entitled “As Medicare Advantage Enrollment Booms, Healthcare Entities Need to Plan Around Key Trends: 2021 Medicare Advantage Competitive Enrollment Report.”

The report examines the latest trends in the Medicare Advantage program, in which CMS, the federal Centers for Medicare and Medicaid Services, contracts with private health plans to provide Medicare enrollees with care management and other services. As the report’s introduction notes, “Medicare Advantage is experiencing several meaningful competitive shifts, as results from the 2021 plan year make clear. The percentage of Medicare-eligible beneficiaries enrolled in Medicare Advantage continues to climb. This year, 42 percent of Medicare-eligible beneficiaries are enrolled in a Medicare Advantage plan, up from 32 percent just five years ago. We continue to see an accelerated concentration of market share into for-profit plans at the expense of non-profit health plans, which continue to struggle to find competitive growth. We studied this impact on non-profit plans across both non-profit Blue-branded health plans, referred to simply as “Blues” in this report, and other non-profit health plans, which are either provider-sponsored or independent regional plans.[1] Meanwhile, for-profit plans are making rapid share gains, accelerated by successful entry into new markets and the emergence of startup venture-backed plans.”

Among the most important trends:

Ø This year, 42 percent of Medicare-eligible beneficiaries are enrolled in a Medicare Advantage plan, up from 32 percent just five years ago.

Ø  Medicare Advantage grew 9.6 percent this year, while enrollment in Original Medicare fell 2.6 percent, pushing Medicare Advantage penetration to 42 percent.

Ø  For-profit plan growth continues to outpace Blue and non-profit plans. For-profit plans now account for 71 percent of all enrollees, up from 69 percent last year.

Ø  Among for-profit plans, UnitedHealthcare and Centene saw the greatest gains, adding 1.6 million lives between the two, and pushing their combined share up 4 points.

Ø  Smaller Blue and non-profit health plans saw promising enrollment gains through outsized share growth this plan year. This may be a sign that these plans can continue to become more competitive in the future.

Ø  New market growth continues to pay dividends for national for-profit and venture-backed health plans. Entry into new markets successfully converts into greater enrollment growth over time.

Ø  Venture-backed health plans now account for approximately 241,000 lives (1 percent of national enrollment) and collectively added 64,000 lives, more this year than any year prior.

As the report’s authors note, “Medicare Advantage crossed a notable threshold for the 2021 plan year: 42 percent of the nearly 62 million Medicare enrollees are enrolled in a Medicare Advantage plan. Overall, Medicare grew by approximately 1.3 million lives in 2021. Growth was driven by a combination of an increase of 2.25 million new Medicare Advantage enrollees and a 950,000-enrollee decline in Original Medicare — reflecting a trend of accelerating Medicare Advantage enrollment by both age-ins and a conversion of existing Original Medicare lives.”

Nick Herro, the report’s lead author, is an associate principal with The Chartis Group and a leader in the strategy, value-based care, and payor practices. He has ten years of management consulting experience working with leading healthcare organizations. His focus areas include health plan strategy, health system enterprise strategy, and private equity advisory. His recent engagements include developing and refreshing an enterprise strategy for a large non-profit health plan; performing a strategic options assessment and subsequent transaction on behalf of the Board of a non-profit Blues plan; and assisting with divestiture of targeted health plan assets to a joint venture. He has experience developing an enterprise strategy for a leading academic medical center and designing a strategic plan for a Top 10 cancer program.  Following the report’s release, he spoke with Healthcare Innovation Editor-in-Chief Mark Hagland, about the report’s findings and his perspectives on the near-term future of the Medicare Advantage program. Below are excerpts from that interview.

How do you see the landscape of Medicare Advantage evolving forward in the next couple of years?

I think, broadly, that the MA market is a really attractive market to beneficiaries and to health plans. There’s a robust market of plans, and as we see year over year, the iterations keep becoming more attractive, and the plans are adept at enrolling new beneficiaries. For health plans, it’s a very profitable product; it’s the perfect product for realizing value from value-based care efforts. And those plans that really have doubled down on value-based care, are set to benefit the most. So it’s a self-reinforcing phenomenon; it’s the perfect coverage for the broader themes within healthcare right now.

How do you see provider-sponsored plans moving forward in this market?

The way I would frame it is that they’ll be able to turn things around, from the atrophy of enrollment in non-profit plans that had taken place. The for-profit plans have really outmaneuvered not-for-profit plans. In 2018, 65 percent of enrollment was in for-profits; now it’s up to 71 percent; they’ve grown by 12 percent per year since 2018, as compared to 1.1 percent and 2.4 percent for Blues and non-profit plans, respectively.

This year, for-profit plans added another 1.4 market share points at the expense of Blue and non-profit plans, the same share growth we saw in 2020. Blues plans saw a share decline of 0.4 market share points, consistent with last year, while other non-profit plans ceded 1 share point. This share shift is caused by meaningfully disproportionate growth rates. For-profit plans have grown at nearly 12 percent per year.

In other words, everyone’s growing, but they’re growing at different rates. We hope that non-profit MA enrollment can turn around. The growth has been in the smaller plans; and it’s the newer, more novel, provider-sponsored plans. So your local health system decided they wanted to be in that market. And they’re investing in population health and care management, and value-based plans. So that may be an opportunity for future growth.

Do you think that patients’ trust in their providers will help to fuel provider-sponsored plan growth?

Yes, and that is the business case for the growth of provide-sponsored plans. And integrated health systems are really integrated systems of care. And if you never need to leave that system of care, and there’s a product built for that system of care, why wouldn’t you go for that? Research shows that patients trust their physicians.

What will be the biggest challenges and opportunities for MA overall, in the next few years?

What plans can do with MA now, from a regulatory standpoint, is much different from what it was a few years ago. CMS is allowing them now to allow providers to write a prescription for food, for example. And so you can address that social determinant now, which is phenomenal. There’s always a question mark on regulatory issues in a government product like this; but the tailwinds will be good. The opportunity is to continue the innovation.

Do you think the new administration will use MA as an even bigger test bed for innovation going forward?

MA is the government’s way of getting out of the insurance business. When you look at direct contracting from CMS, it’s MA-like. They saw the successes in MA and said, wouldn’t that be nice if we could apply that to the 60 percent of beneficiaries not in MA, and drive real value creation? So yes, real value creation in healthcare—the government wants to drive that throughout Medicare. So direct contracting is the mechanism to apply MA innovation throughout Medicare; and it’s very clear that MA has been a success, and they’re trying to replicate that.

Do you think that geographic direct contracting will take off?

Well, it’s a signal that they’re trying to give individuals and physicians choices and incentives to really create meaningful value.

Because fee-for-service Medicare can only go so far in creating value, correct?

Correct. The mechanisms are basic; submit a bill and get paid. And it’s trite, but value is revenue now, and CMS is trying to amplify that theme as much as they can.

How should provider leaders strategically plan, based on all of this?

First and foremost, they need a plan; that doesn’t necessarily mean investing in and doubling down on, an MA product; but they need a plan. And this has meaningful implications for the entire healthcare system, because it’s causing a shift in access and in use rates. And what was previously very consistent, reliable volume through traditional Medicare, is now being administered through a third party. And some of the significant for-profits are building sizeable assets through this book of business. So that could be impactful. United HealthCare is the largest single employer of physicians in this country.

Do you think that significantly more physicians will go to work for health plans in the coming years? Do plans have the upper hand?

I don’t know that I would describe it as their having the upper hand; but they’re changing the face of practice. At Humana, they’re very clear that they’re very willing to give full-risk contracts to high-value medical groups. And whether they employ the physicians or not, they have the power to change the dynamics of the industry through that financial lever alone. So they can really enable a new wave of innovation and value. Now, not every health plan will buy practices as United has; others are partnering.

Do you think that capitation will evolve forward quickly, then?

I think it will evolve far more quickly than other elements, at the speed of light compared to other elements in healthcare. Previously, you did not have the enablers to do that, under traditional Medicare or traditional self-insured coverage. But now you’ve got 42 percent of Medicare enrollees in an MA plan. Previously, everyone thought that Medicare would flip to 50 percent MA by 2030; now, we’re thinking it will be by 2025 or 2026. And that’s a very meaningful mental heuristic in terms of how this could all work. And that’s a strategic enabler for everything we’ve discussed. Now, you have the vehicle to really pursue a lot of these value-based care initiatives, because previously there wasn’t the bolus of lives to work with. But now, in the snowbird markets like Florida and Arizona—Florida hit 50% MA this year, and physician practices in those markets are very willing to do these types of deals and are very adept at managing them. So you’ll see things moving at the speed of light in some markets across the country.

Will physicians’ moving quickly, quicken hospitals’ moving into risk-based contracts, in the next few years?

Indirectly. You know, the most advanced hospital-based systems—if everything around them is shifting, it will amp up the pressure for them to do the same. And a lot of them are doubling down, but they can’t move as fast as a privately equity or venture backed practice can. And there are luminaries like OakStreet, Iora, VillageMD, ChenMed, that have incredible growth expectations, with business models built around this concept. And as those models proliferate throughout the country and they meet their performance goals, it’s going to change what table stakes are in markets, and health systems will need to have a response—a reason to do or not do something new.

What would you advise hospital-based leaders to do right now?

Well, I think it starts with just recognizing the trend broadly, and the threats and opportunities that the trend creates for them. In the context of healthcare, every decision is local. What’s good for a health system in Florida might not be good for a health system in Illinois, or even germane. But broadly speaking, these trends are accelerating, and have all the fuel to continue accelerating. So I think there’s an acknowledgement of that. And I think there’s careful planning around whether to embrace or choose not to embrace the trends. In some markets, it’s actually not a good idea for health systems to embrace these trends; in others, they won’t even have a choice over whether to do so or not. So it’s a very complex and nuanced market; there are very, very evident trends, and creating a consensus around what the local response or position is going to be, is probably step one.

There are hospital-based integrated health systems that are already doing well in the provider-sponsored plan market.

Yes, and in the Midwest, as in Michigan and Wisconsin, many have created the plan of choice. And Aetna has a portfolio of provider partnerships. But some organizations have decided it’s not for them. If you’re a destination cancer center, you might not need to create a plan. But if you’re an IDN with a broad footprint in your market, you might.

Is there anything else you’d like to add?

This has been a very thought-provoking conversation. Broadly, there’s a massive pivot happening in HC, and it’s really being led by MA as an enabler to a lot of different strategies unfolding in different markets. So we’re trying to draw attention to it, because it will have such a meaningful impact on markets.

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