Medicare Advantage’s Strength During COVID-19 to Drive Expansion into New Markets, 50% Adoption by ’24

While the skilled nursing landscape continues to struggle both operationally and financially during the COVID-19 pandemic, those same negative forces have only served to strengthen private health plans — putting Medicare Advantage in an even better position to continue its growth.

Cratering census and sharp declines in elective surgeries, while fiscally devastating for nursing homes, have only benefitted the insurance market, Avalere Health founder and Welsh Carson operating partner Dan Mendelson observed.

“When volumes go down, the health plans benefit financially,” Mendelson said during a Wednesday panel discussion at the National Investment Center for Seniors Housing & Care (NIC) virtual conference. “So in the health plan space, [there’s] a lot of stability, a lot of investment. Health plans today are investing in technology; they’re trying to figure out how to be more sophisticated in health IT and how to engage more. It’s really, in a lot of respects, like a tale of two cities.”

Mendelson and Avalere have long been bullish on Medicare Advantage, predicting growth at a much faster rate than government estimates. Based on current enrollment trends, with about 8% growth per year, total penetration will surpass 40% this year, and crack the majority of total Medicare members by 2024, according to Mendelson.

“At that point, health plans will be the dominant form of Medicare,” he said.

For comparison, the Congressional Budget Office has predicted 47% enrollment by 2028.

The growth of Medicare Advantage plans has largely been seen as a negative trend for skilled nursing operators, which rely on fee-for-service Medicare beneficiaries for the highest, most consistent reimbursements. With a private insurer’s focus on margins, Medicare Advantage typically pays out lower per-day reimbursements and exerts pressure to reduce lengths of stay, providing a dual financial crunch for providers in the space.

Further complicating the issue is the fact that Medicare Advantage growth has not been distributed evenly throughout the country, with states such as Minnesota and Florida nearing 50% penetration last year, and other, more rural areas seeing significantly lower uptake.

“Every year that I’ve spoken at NIC, there’s some operator who comes and says, ‘I don’t know what you’re talking about, because we don’t see any Medicare Advantage,'” Mendelson said. “Well, it’s really just a matter of time, I think, before there is very wide diffusion.”

Mendelson acknowledged that entering new Medicare Advantage markets, as opposed to running up the percentages in existing hotspots, can be difficult for health plans, especially in rural areas without significant competition between hospitals and other health providers.

But given health plans’ relative strength during COVID-19, and growing consumer acceptance of the public-private Medicare plans, the space could be poised for more aggressive growth in the years ahead.

“In a world where 50%, 60% of Medicare is already enrolled in Medicare Advantage, you can bet that with the additional political clout that the plans have, they’re going to be thinking about how to how to deploy MA plans in areas that have historically been more difficult to operate in,” he said.

Mendelson isn’t the only policy and payment expert who has made such a prediction. Back in March, Zimmet Healthcare Services Group president Marc Zimmet cited the rapid MA enrollment of seniors who have just turned 65 in his home state of New Jersey as a reason to take notice: While the total proportion of MA beneficiaries sits at about 28% in the Garden State, it would be about two-thirds if everyone joined at the same rate as younger seniors.

“It’s happening organically,” Zimmet said. “It’s happening: Medicare is being privatized by Medicare Advantage, any way you slice it.”

Those newly minted Medicare Advantage beneficiaries are increasingly drawn to the additional coverage that the plans provide, from cheaper prescriptions to dental and vision coverage to nutrition and transportation services.

“We’re seeing the best set of options for consumers that we’ve ever seen in terms of premiums and supplemental benefits,” Anne Tumlinson, CEO of health care consulting firm ATI Advisory, said during the Wednesday NIC presentation.

It won’t be an automatically easy proposition for either side of the insurance-provider equation. Medicare Advantage plans continue to struggle with creating innovative, mutually beneficial contracts with skilled nursing providers, Tumlinson observed — with the typical model generally forcing the post-acute setting to take a significantly lower per-day rate than traditional fee-for-service Medicare.

“I really think Medicare Advantage plans, at some point, are going to have to grapple with post-acute care. I feel like you and I have been telling them this for 10 years: You’ve got to come up with a post-acute care strategy,” Tumlinson said. “It’s just a mess.”

But the risks for inaction, or an unwillingness to work proactively with the plans and the greater integrated care world outside of the nursing home space, could outweigh the short-term pain — especially as the sector works to reestablish trust and financial stability in the wake of a once-in-a-lifetime tragedy within its doors.

“From an investment standpoint, I wouldn’t touch an organization that wasn’t deeply committed to quality and that kind of integration, because I don’t think that they are long-term viable in this environment,” Mendelson said.

And while in the past, consumer wariness of nursing homes stemmed from a fear of aging and the loss of autonomy, the stakes have now risen to life-or-death for people considering where to live or send their loved ones.

“Not only do they have a distaste for nursing home care, like they don’t really want it as a primary option, they’re scared of it, and reassuring consumers about how infection control is done, and the safety of the facilities, and how those facilities are cross-integrated back with the clinical environment with respect to infection control, are really critical aspects of getting the volumes back,” he said.